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July 21, 2021

“At least we’re better than credit cards” – Afterpay speaks out on putting users at risk of debt

By Eric Johansson

Contrary to recent criticism, Afterpay believes the buy-now-pay-later (BNPL) doesn’t put people’s financial health at risk as much as traditional credit cards. Instead, the fintech is adamant about it actually raising the standards for the credit industry.

The Australian BNPL business made the statement as it unveiled its new money management app for Gen Z, Money by Afterpay.

The BNPL industry has been around for years and grew tremendously during the pandemic. The growth happened in tandem with skyrocketing adoption of ecommerce as more people took their shopping online during lockdown. Recent GlobalData Thematic Research even estimates that the worldwide BNPL sector will be worth $166bn by 2023.

Other notable players in this bountiful field apart from Afterpay include Swedish quadradecacorn Klarna, American Affirm and UK $500m startup Zilch, as well as a smattering of smaller startups.

Bigger firms such as PayPal have also muscled into the sector and are rumoured to soon be joined by Apple, which is said to be working on a BNPL solution of its own.

However, criticism against the fintech industry has grown louder in tandem with the growth of the BNPL sector. Mostly, the worry from politicians, regulators and other concerned parties is that BNPL companies’ instalment plans put users’ financial wellbeing at risk as they arguably encourage people to live beyond their means.

In an exclusive comment to Verdict, Afterpay has now responded to this criticism.

“It’s important to note that BNPL can be used as an umbrella term for a multitude of providers with very different offerings,” Amanda Shannahan Moore, head of communications and PR, tells Verdict. “Afterpay’s model is highly unique and differentiated in that group.

“We believe we have lifted the standards when it comes to best practice – we don’t know of a credit card offering that freezes a customer’s account as soon as a payment is missed, to prevent the customer from taking on more than they can afford.

“This is in stark contrast with credit cards, where very low minimum payment requirements mean that consumers can extend their credit card debt over many years (or decades) at interest rates of 20% or more.”

Shannahan Moore adds that these efforts to raise the credit industry standard extend to the new money management service Money by Afterpay.

“For Money specifically, we’re looking to re-imagine money for the next generation and make savings as fun as spending,” she says.

Money by Afterpay is the result of a collaboration between the BNPL company and Westpac, one of Australia’s traditional lenders that in 2020 was fined AUS$1.3bn ($951m) for breaching anti-money laundering rules not on a few occasions but 23 million times in the last decade.

The “money and lifestyle app” is aimed at young people to “ease the mental load” of managing their financials.

Essentially, the app will allow any Australian Afterpay account holder to log into the Money by Afterpay app. From there, they will be able to stay ahead of any upcoming orders and planned instalments and check their BNPL balance alongside their daily spending account and saving accounts. The app users can earn a 1% yearly rate of up to 15 savings accounts, which will be paid by Westpac.

Afterpay will make what Shannahan Moore refers to as a “small income from deposits.”

Money by Afterpay will initially be rolled out in a staff trial in July to try out new features and to refine the user experience ahead of the official launch in October. Some of those features will, according to Shannahan Moore, include a referral stream for mortgages “and product enhancements that will drive revenue.”

“You’ll hear a lot more from us in the next few months!” Shannahan Moore tells Verdict.

Afterpay co-CEOs Anthony Eisen and Nick Molnar, add: “Afterpay has always stood apart in the way it connects with customers around common core values of simplicity, transparency and trust. Ultimately, with Money by Afterpay, our goal is to make managing your money simple, frictionless and stress-free.

“Money will broaden our relationship with our loyal customers and also attract a new group that’s looking to streamline how they manage their finances within the debit economy, further cementing our commitment to supporting responsible spending.”

Afterpay is operating in Australia, New Zealand, the US, the UK and Canada.