Afterpay’s late fees represent 24% of its revenue; ASIC recommends buy now, pay law reform later


The popular Millennial digital payment app Afterpay has been criticized for causing “financial stress” for vulnerable consumers.

The money he earns from late fees has jumped 365 percent to $ 28.4 million, according to his latest annual report, released Thursday.

It is significantly higher than its $ 6 million late fee for fiscal year 2016-17.

Afterpay said it derives 24.4% of its revenue from late fees – and 75.6% from merchant fees (charging retailers a commission for each sale).

“Our financial advisors are reporting that we are getting more and more calls from people with debt bought now and paid later, including Afterpay,” said Katherine Temple, senior policy officer at the Consumer Action Law Center.

“Most of the people who call us for help with afterpay debt are juggling many other debts, such as credit cards, payday loans and utility bills. “

ASIC’s regulatory loophole

A report from the business regulator on Thursday also recommended law reform in the “buy now, pay later” industry, which also includes companies like Zip Money and Zip Pay.

In the report, the Australian Securities and Investments Commission (ASIC) noted the government’s plan to expand credit regulations to cover the buy now, pay later industry.

“While under the regulatory responsibility of ASIC, many providers of buy-now and late-payment arrangements are likely to fall outside the scope of product intervention authority,” wrote the ‘ASIC.

He explained that buy-now, pay-back programs are currently not covered by the National Credit Code and are therefore unregulated.

“Some providers provide funds without charging fees or interest and, as such, do not meet the definition of ‘credit’ under the code,” wrote the ASIC.

Afterpay is likely to fall into this category since it is a free service for its users who pay on time.

In addition, the company charges a fixed fee, instead of an interest rate, to customers who miss their payments.

The company imposes a penalty of $ 10 on buyers who miss the first fortnightly refund, and then an additional late fee of $ 7 if that payment remains unpaid after a week.

Customers who miss all four installments are subject to a total late fee of $ 68 per transaction.

The Consumer Action Law Center doubts Afterpay will conduct extensive responsible loan audits because it approves customer purchases “instantly” – a promise that features prominently on its promotional materials.

Ms Temple said: “Afterpay does not consider itself subject to our national credit laws because it does not technically ‘bill’ consumers, although late fees do apply.”

ASIC also said that “vulnerable” consumers using these payment terms face several risks.

This may include credit providers carrying out “limited inquiries into the financial condition of consumers before granting credit”, and some providers financing high purchase costs (up to $ 30,000) over long repayment periods. .

Fortunes multiplied by six

Afterpay’s fortune has grown exponentially over the past year, as its market value has increased six-fold from $ 670 million to $ 4 billion.

In its financial results, released Thursday, Afterpay revealed its progression to profit – its net loss edged down 6% to $ 9 million.

This is explained by a 397 percent increase in revenue to $ 113.9 million.

The company said this was due to a “significant increase” in the number of retailers signing up for its payment platform and customers adopting it as a “payment method and budget tool.”

There was also an improvement in bad debts, with “net transaction losses” accounting for 0.4 percent of underlying sales (up from 0.6 percent last year).

Afterpay believes this is because customers “continue to use the platform responsibly” – especially since 95% of the payments it has received “have not resulted in late fees.”

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Afterpay raises fears of financial hardship with the instant approval model.
Afterpay raises fears of financial hardship with the instant approval model.(David Chau)

Shopaholic and financial stress

The Mozo financial product comparison website surveyed 1,000 customers across the country who use Afterpay and found the results “surprising”.

“As market leaders in ‘buy now, pay later’, we wanted to learn more about user spending behaviors on this platform,” said Kirsty Lamont, director of Mozo.

Survey clients said they were:

  • In “financial stress” due to their Afterpay spending habits (25 pc);
  • Prone to spend more with Afterpay, compared to a debit or credit card (45pc);
  • Unaware that the use of Afterpay could potentially affect their credit score (33 pc);
  • Hide their Afterpay expenses from partners (30pc).

About 650 of those customers believed small, digestible payments spurred them to make purchases they wouldn’t normally make.

AfterPay screenshot
It is estimated that a quarter of all online clothing retailers use Afterpay.(



“Afterpay is very attractive to buyers who don’t have the cash on hand to make a one-payment purchase, and that’s where the risk lies,” Ms. Lamont said.

Afterpay client Chelsea, 30, told ABC she uses the platform frequently and has a “love-hate relationship” with her.

The unemployed psychology student said she spent more than she earned, that she liked to get the clothes she wanted right away, but knew that her “future himself would pay for it. price”.

Despite not working, Chelsea are able to pay with their savings, boosted by a large severance package when she quit her company job last year.

“I didn’t miss any payments because Afterpay is tied to my credit card, but it left me in an even worse financial situation,” she said.

Afterpay’s intense disagreement

Afterpay strongly contested the findings of this investigation.

“The obvious factual errors … and the limited scope of this investigation call into question its credibility and accuracy,” said the spokesperson for Afterpay.

“Customers cannot continue to use the system if they are in arrears with payment.

“94% of Afterpay transactions come from loyal customers, which means they have no overdue amounts.

“Afterpay purchases do not affect credit ratings because we do not report to rating agencies.”

But according to its terms of service, Afterpay has the right to report customers to credit reporting agencies, under clause 6.2 (e):

“You authorize Afterpay… to disclose to third parties… any information concerning you or your Afterpay account. Further, you acknowledge that Afterpay reserves the right to report any negative activity on your Afterpay account (including late payments, missed payments, defaults). or chargebacks) to credit bureaus. “

Develop abroad

Afterpay will expand to the UK in six months, acquiring UK company ClearPay, which offers a product similar to Afterpay.

Window of a fashion retailer displaying the sign
Afterpay offers loans for products online and at traditional brick and mortar retailers.(

Provided: David Chau


ClearPay offers buyers “interest-free credit” through a “buy now” and “pay in three installments” arrangement, in what is essentially a modern expectation.

Afterpay’s proposition, by comparison, is “buy now, pay later”, in four bi-monthly installments, but emphasizes that it does not offer “loans” or “credits” – and is therefore not tied by responsible lending laws.

The company will pay for its UK acquisition by issuing 1 million new shares and also funding it through a $ 108 million fundraiser.

This follows its expansion into the United States three months ago, with Afterpay signing 800 US retailers and 150,000 customers.

Afterpay has come a long way since February when it released its half-year results. At the time, it had signed up 6,000 retailers and had 1.5 million active customers.

It has since skyrocketed to 17,700 retailers and 2.3 million customers.


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