This was published 10 months ago
Afterpay defends subscription foray after consumer group warnings
By Millie Muroi
Afterpay’s new product that allows shoppers to use the buy now, pay later (BNPL) operator for a wider range of purchases has reignited debate over how tightly the fast-growing sector should be regulated, as the industry awaits further details on the government’s policy.
On Tuesday, consumer advocates warned the BNPL giant’s recently launched Afterpay Plus product – which charges a $10 monthly subscription to give customers access to an Afterpay loan at the tap of a card – could lure Australians into more debt, with limited checks on their ability to repay it.
But Afterpay, owned by US fintech giant Block, hit back at criticisms, saying the vast majority of its customers repaid on time and its product offered consumers a safer, interest-free alternative to credit cards.
An Afterpay spokesperson said the company offered a safer alternative to credit cards.Credit: Lauren Vadnjal
A spokesperson for the company said the new service, which allows customers to take out loans at a wider range of locations using Apple Pay, Google Pay or Samsung Pay, would be subject to rigorous protections.
“We will continue to start all new Afterpay customers on a low limit,” they said. “And because Afterpay Plus is only available to existing customers, subscribers to Afterpay Plus will have their same spending limits applied to help ensure safe use. The product will always be interest free and include safety features such as capped late fees, transparent repayment schedules and SMS payment reminders.”
The spokesperson said that in the second quarter of 2023, 95 per cent of Afterpay instalments were paid on time and 98 per cent of all purchases incurred no late fees. “This is in stark contrast to the credit card industry, which benefits from customers not paying their balances in full and revolving in long-term debt,” they said.
However, Financial Counselling Australia chief executive Fiona Guthrie said Afterpay’s new product had inadequate affordability and credit checks.
“As if it weren’t easy enough already to get a BNPL loan, shoppers can now access an Afterpay loan at even more retailers, even more easily with the tap of a card,” she said. “Financial counsellors are already inundated by clients struggling with BNPL debts – tempting people to take on even more debt will only make this worse.”
Afterpay, which provides digital interest-free instalment loans that consumers repay over four fortnightly instalments, has long been contentious with consumer groups because this type of lending is not regulated as credit.
In the 2022 financial year, the number of BNPL accounts in Australia ballooned from 5 million to 7 million, amounting to $16 billion in transactions, an increase of 37 per cent from the previous financial year.
On Tuesday, BNPL provider Zip posted positive cash earnings for the first time on the back of 11 per cent growth in transaction volumes and stronger margins. Shares in the company traded 5.8 per cent higher on the news.
As the BNPL sector has grown, the federal government has looked to regulate the industry, while also acknowledging BNPL provides competitive pressure against traditional credit.
In May, Financial Services Minister Stephen Jones proposed a new regulatory regime that would classify BNPL as credit products, meaning operators would have to comply with the National Consumer Credit Protection Act and hold an Australian credit license. Details of exactly how the changes will affect BNPL loans were not released, and Jones said he would release draft legislation towards the end of the year.
Financial Rights Legal Centre chief executive Karen Cox said she was seeing more consumers looking at insolvency options with BNPL debts, especially as cost-of-living continued to bite.
CHOICE’s head of campaigns Andrew Kelly argued for BNPL companies to be reined in with strong and safe lending obligations. “BNPL lenders like Afterpay have exploited gaps in Australia’s consumer laws for years, and this new product only proves that they’ll continue to do so until the loopholes are closed,” he said.
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