Christmas shopping is always stressful, let’s face it, whether it’s finding a car spot at Westfield, choosing the right gift for the outlaws, or the financial pinch on our bank balances come January.
To help with the latter, a “buy now, pay later” financial service called Afterpay is gaining traction across Aussie retail, both in store and online.
Essentially, Afterpay customers can pay for purchases over four equal fortnightly instalments – if you wanted a $200 suit from Zara, instead of an upfront payment you’d be paying four instalments of $50.
Afterpay CEO Nick Molnar told Triple M the company works with 10,000 retailers and over 1.3 million customers, 75 per cent of who are millennials. “About 85 per cent of our customers also use debit cards,” he said.
“Millenials have really shifted, they prefer to use a debit card and they really feel responsible.
“When they use a debit card it links into their bank balance, they’re spending money that they’ve got and that millennial debit trend has definitely been a core driver of our business.”
‘Premised on trust’
Afterpay customers don’t enter into a loan or credit facility, don’t pay upfront fees or interest and aren’t hit with extra charges so long as payments are made on time.
If you do miss a payment, you’ll be hit with late fees ($10 for the first missed payment, then $7 the following week if you’re still late).
Molnar says you’ll also be stopped from making new purchases with Afterpay until you’re out of the red.
“We absolutely promote positive spending behaviour. If a customer goes late they can’t use the service again until they’ve paid that late payment off,” he said.
“It is all premised on trust and the feedback we’ve got from our customers is that the trust factor has been the key driver of their relationship with us, and the reason we’ve been able to successfully deliver a model that’s in favour of the customer.”
Hardship, irresponsible spending and consumer rights
Molnar said Afterpay was committed to working with customers alongside mechanisms built into the service to help people manage their money.
“If a customer doesn’t pay we lose the money, we pay the retailer straight away, so it’s absolutely in our interests for our customers to pay us back on time,” he said.
“The customer provides us with a debit card or credit card that want to be automatically be billed from in the future. All payments are completely automated.”
Molnar said Afterpay sends a reminder text message to a customer ahead of an upcoming payment deadline.
“If at any stage they want to get in contact with us they can get in touch with our customer service team via phone or email,” he said.
“We have a hardship policy in the event that customers might want to engage in a payment plan and we’ll absolutely work with customers in the event they might want some more flexibility.”
As for consumer rights around the actual purchase, Molnar says this would still fall back to the retailer.
Tempting ‘dark places’
Financial guru Vince Scully from Life Sherpa echoes Molnar’s praise for Afterpay but says customers should always watch their spending habits.
“If it’s something you were going to buy anyway, that’s obviously very attractive, particularly at this time of year when you’ve got a lot of expenses at once when you could instead spread that over December and January. That’s obviously a good thing,” he told Triple M.
“But whenever you separate the pain of paying from the pleasure of purchasing you generally spend more.
“There’s a lot of research around this, they call it removing the flinch point where you hand over the cash – buy now, pay later – we know you spend more.
“The opposite of that is if you prepay for something, like a holiday, we actually enjoy the purchase more. Human brains are very strange things. That’s the danger.”
With people spending an average of $150 on each order, Afterpay now accounts for 20 per cent of total online fashion retail and five per cent of total online retail in Australia.
“Fashion is the big place where Afterpay is used. Some of this is fast fashion, it will be worn out or useless before you’ve made your final payment,” said Scully.
“It is good if you want to spread out your payments, that’s the big thing, if you’re buying big purchases online it’s a good way of spreading it over four pay cycles, that’s obviously a big one but you don’t want to be getting this one wrong.
“It’s predominantly young women who are using it and they’re predominately using it to buy fashion.”
Keeping these factors in mind, Scully said “there’s not much to dislike” about Afterpay if you do manage to remain financially responsible.
“It’s great for the merchant because they get more sales,” he said.
“It’s great for the consumer because they can spread their payments and it’s not going to cost them anymore.”