Wednesday 08 Feb 2017

Afterpay: what you need to know

By: James Degenhardt

In an age of convenience, where getting credit can be easier than getting paid, consumers need to pay close attention to what they can afford and how they spend their money. A relatively new “buy now, pay later” facility has emerged that is enticing young shoppers to get the things they want now, and pay for it over time. Afterpay, which is now offered by over 160 merchants in Australia, follows a similar process to the old lay-by systems with the main difference being that you can take your purchase home the same day.

To use the service, online shoppers simply select the Afterpay option at checkout and enter their credit or debit card details as per a normal online purchase. Afterpay then splits the cost of the item over four equal payments due every two weeks. Once the order has been approved, the item is shipped by the merchant. An Afterpay account is automatically created for the shopper, allowing them to use the service for future transactions by simply logging in. Afterpay can also be used for in-store purchases at a growing number of popular retailers, including Athlete’s Foot, General Pants and Topshop. Before purchasing in-store, the shopper must go online to create their own unique barcode which is scanned at the checkout to enable their purchase via the payment plan. The icing on the equally-portioned cake is that the service is interest free.

Afterpay can offer their service without interest, subscription or set up fees charged to the consumer because it is the merchants that pay to use the platform. But the merchants are certainly not losing out. According to the Afterpay website, merchants are benefiting from increased sales conversions, repeat customers, and in some cases a 60% increase in overall order value.

Afterpay now has over 140 000 customers in Australia, and it’s easy to see how the service is gaining popularity among young shoppers with a Veruca Salt “I want it now!” attitude. For anyone who’s been eyeing off a new pair of jeans but simply cannot wait until payday, the concept is very appealing. But there is a potential risk for those who have trouble making payments. If an automatic repayment fails due to insufficient funds, the shopper will be notified via SMS and email to make an immediate payment online. If payment is not made within 24 hours, a $10 late fee is charged, with an additional $7 charged if the payment is still overdue after seven days. These fees are applied to all subsequent instalments that go unpaid.

For consumers having difficulty making their repayments, Afterpay encourages them to make contact to discuss their situation. A hardship policy is in place to allow the customer’s circumstances to be taken into consideration when determining a possible waiver of the late fees or restructuring of the repayments. The biggest consideration is given to how long it will be until the customer can make the payment. For customers applying for a review under the hardship policy, future payments will be deferred until the review is complete. Afterpay have advised that they only provide short term assistance. The most important step for the customer is to notify Afterpay as soon as possible. Customers with overdue payments who have not contacted with Afterpay risk having their debt forwarded onto a collection agency after 30 days.

Afterpay state clearly in their Terms that they reserve the right to assess the shopper’s repayment capability before approving each order, which includes requesting a report of the shopper’s credit history. However, as the approval process is usually instantaneous at the time of purchase, Afterpay will initially charge a pre-authorisation amount to the shopper’s card. This will determine whether or not the customer has sufficient funds for the first instalment to be paid. In most cases, pre-authorisation amounts are reversed within a matter of hours; however, as noted in Afterpay’s Terms, there are recorded instances of banks taking up to 14 days to void the amount. This could potentially be detrimental to any consumers who have other payments due around the same time, such as rent or bills. If their accounts are overdrawn, they may even be charged fees by their bank. 

Unlike credit cards which offer users a monthly credit limit, Afterpay makes an assessment on each transaction and claims that a customer is likely to receive a higher spending limit the longer they have been a customer and the more orders that they have successfully repaid. But this is not guaranteed. Reviews posted online by alleged Afterpay customers show this issue to be the greatest source of frustration, with one user claiming their spending ability with the platform went from $1500 to $200, despite having a satisfactory repayment history. While this won’t impact the customer’s finances negatively, it is a minor inconvenience that means they may need to wait until they can afford to purchase the item upfront before they can have it.

Other customers have reported issues relating to returns and refunds. Afterpay have a very clear policy regarding the refund of a returned item. The customer must satisfy the retailer’s refunds and returns policy, after which point the retailer is expected to notify Afterpay for the refund to be issued to the customer. However, until the retailer has confirmed receipt of the returned goods and refunded the amount to Afterpay, the payment plan will remain in place. If there are significant delays in this process from the retailer’s end, the consumer will continue to be charged for the goods even after returning it. Again, this should be considered as it may create further issues for the consumer.

While the aftermath of the holiday season can leave many consumers with more debt and less funds than they started with, Afterpay has merit for those who know their means and spending capacity. On the other hand, for anyone like Sonny and Cher who, before its earned, their money’s all been spent, they would be wise to reconsider using the facility. Afterpay has created a simple and user-friendly service which will no doubt continue to gain widespread usage. However, unexpected pitfalls may emerge for unwary shoppers lured by the prospect of instant gratification. Users of the service who find themselves in difficulty should contact Afterpay customer service immediately to discuss their situation – call 1300 100 729.