‘Collect now, pay later’ platform raising concerns

New plan makes payments easier, but being late will be costly.

Digital payment firm’s fee sting

With airline Jetstar and retail giant Kmart recently having rolled out Afterpay for online shopping, concerns are growing that the ‘collect now, pay later’ digital platform may trap unwary customers with growing debt.

Australian innovation Afterpay splits repayments on purchases into four equal instalments paid at fortnightly intervals and does not charge interest.

For instance, if you buy a $100 item, you are required to allow Afterpay to directly deduct four $25 instalments from your debit card over an eight-week period.

It allows customers to shop without a credit card, but if they are late with payments for whatever reason, they will incur a fee of at least $10, plus subsequent fees of $7 if the balance remains unpaid.

On its website, the company explains: "We cap late fees at 25 per cent of your purchase price or $68 (whichever is less) – they never go higher than this. The real penalty for missing a payment is that you can’t use Afterpay until you make your outstanding payment.

"Financial penalties are there, but only to stop Afterpay being deliberately taken advantage of – and as an incentive for everyone else to stick to their payment plan."

An Australian Securities and Investments Commission (ASIC) report found that in the past financial year, Afterpay earned a quarter of its income, or $28 million, from late fees.

Curtin University accounting academic Saurav Dutta explains the way Afterpay makes money another way - through compounding interest that can soar into double digits and beyond.

The largely unregulated digital platform, and others like it, has now attracted the scrutiny of watchdogs.

These platforms do not do credit checks on potential customers because they are not offering credit. This can lead to customers taking on more debt than they can afford.

South Australian Council of Social Services chief executive Ross Womersley warned in The Guardian that Afterpay was “another way of encouraging us to commit to money we don’t actually have in our pockets”.

“That’s fine if we’re in a situation where we have the income flow to meet whatever payments we’re obliged to ... but it’s easy to picture a situation where someone loses track of their commitments and over-burdens themselves,” he said.

Consumer advocates organisation CHOICE is calling for organisations such as Afterpay to be made to comply with credit laws.
"CHOICE believes there should be a level playing field and effective regulation of credit and credit-like services," CHOICE spokesperson Jonathan Brown told YourLifeChoices.

"Buy now, pay later schemes should be covered under the National Credit Act, to ensure Australians have the same protections they would under other financial products. As the banking royal commission has shown, financial services companies have been consistently taking advantage of Australians, leaving many people in extreme financial difficulty," Mr Brown said.

Afterpay, one of the best-performing stocks on the Australian Securities Exchange this year, already has more than one million users.

Would you use a ‘collect now, pay later’ platform if it did not charge interest? Do you think customers who incur late fees for non-payment of bills have only themselves to blame?



    To make a comment, please register or login
    9th Nov 2018
    Sounds a lot better than some of the other options which get people into trouble and I think this article is a witch hunt.
    The fact that you are limited to one purchase and have to pay it off before you make another is brilliant. I fail to see the problem other than those who spend money they do not have with nil thought about repaying. That's not the fault of this product.
    9th Nov 2018
    Quite right Mick, some companies do allow multiple spends though, Oz Sale, which uses 'our pay' is one. I currently have 6 or so parcels on the way and a few hundred owing debited fortnightly to my credit card.
    I haven't read the penalties for missing a payment but I reckon they be high as they send reminders etc.
    9th Nov 2018
    Do not spend what you have not got or cannot cover, simple! Oz Sale had the same and I am a user of this system, but it is debited from my credit card so I get points etc. But, I know I can cover the amount spent and it is a great way to get the things you want.
    Having said that, people need to act responsibly, we must be made responsible for our actions. To many people in today's society need their butts wiping for them and they need to learn that they are ultimately responsible for their own actions.
    9th Nov 2018
    I have to agree with my fellow posters. When do we stop putting the nappies on people. As an adult, act like one, don't live beyond your means.
    Personally, although I am a pensioner on only a meagre added super income, I pay cash. Did most of my life, except when I was first starting out. \
    But it seems that Afterpay as stated by my fellow posters, is acting quite sensibly - it is then up to the customer to do the same!!!
    9th Nov 2018
    It's not much different to hire purchase back in the past. We bought the stereo, tv, cooking utensils, cutlery and china, vacuum cleaner and sewing machine all on hire purchase.

    Even the things needed for the baby were bought on hire purchase.

    After a while you ended up with a good credit record if you paid on time and could get that first car loan.

    I don't do debt now but the hire purchase was terrific when I was young.
    Life experience
    9th Nov 2018
    Yes. I think it’s a fair system. And the fact it’s over 8 weeks payment it’s more controllable. It’s much fairer than the banks. And fees are fair. It’s fairer than any other system I’ve looked at.
    9th Nov 2018
    I want it! I want it now! I will not wait. I will not save up for the item. I wil buy it using Aftepay without considering whether I can afford it or not then complain if I am charged fees for not paying what I OWE in time.
    Who’s fault it is?
    9th Nov 2018
    I blame MICK and Liebor generally.

    Join YOURLifeChoices, it’s free

    • Receive our daily enewsletter
    • Enter competitions
    • Comment on articles