Afterpay-Westpac ‘Retro’ painted with a payday loan brush

Afterpay’s new “Retro” feature retroactively splits a payment into four installments, which critics say isn’t better than a payday loan or payday advance.

Announced Wednesday and slated to launch next month, Afterpay’s collaboration with Westpac retroactively splits a payment into four installments, based on one transaction in the last 72 hours.

The Retro feature actually means up to $ 200 is credited to customer accounts.

Users must be a “Money by Afterpay” customer, and while there is no additional charge to use the product, the usual Afterpay late fees apply.

Afterpay vice president Lee Hatton said the new feature gives consumers an alternative to high-interest payday advances or “pay-on-demand” apps.

However, Gerard Brody, CEO of the Consumer Action Law Center, told Savings.com.au that the new feature is “just another credit agreement.”

“This… underscores why we need national credit laws to apply to buy now and pay later, including responsible lending laws,” Brody said.

The collaboration with Westpac on the new Money by Afterpay application – where the “Retro” function is located – effectively marks the transaction account of the big bank in white label.

Payments expert Bradford Kelly told Savings.com.au he was surprised Westpac was collaborating on such a move.

“Where’s the regulator? Asleep at the wheel. If that doesn’t get the regulators’ attention, nothing will,” Kelly said.

“I am shocked that a bank, let alone Westpac, is associated with such a blatant product.

“Customers who need $ 200 – and let’s face it, it’s not a question of budget – are at their wit’s end when it comes to credit.

“Why go to the bottom of the barrel when the gutter is right over there?”

A spokesperson for Afterpay told Savings.com.au that Retro’s intended use is for budgeting, not lending.

“The retro is part of a customer’s overall BNPL Afterpay limit, not something more,” they said.

“It is important to note that Retro is available for purchases that customers have already made with their Money by Afterpay debit card.

“Like Afterpay, Retro is purchase-related and is not a cash loan.

“Retro doesn’t cost anything for Money by Afterpay customers, provided they pay on time.

Why is this happening?

Following a less than stellar earnings report and a mixed reaction to the Square takeover, experts say Afterpay’s decision is to acquire customers quickly.

Colin Biggers and Paisley (CBP) law firm partner Toby Blyth told Savings.com.au that the alliance between Afterpay and Westpac is for marketing purposes and ease of scale.

“This is a marketing alliance with Westpac to deliver a new product to Westpac’s own customer base and to evolve Afterpay, given market concerns about the profit and viability of Afterpay in the larger market basin. international, ”Blyth said.

However, Mr Blyth also questioned the direct monetary benefit for Afterpay.

“He cannot charge the merchant, who has already paid the merchant’s fees on the original debit card transaction that is in fact being refinanced,” he said.

“Westpac may pay what is in effect an introducer fee to Afterpay and recover the costs through late fees.

“Banks have extensive experience with the loss call effect of ’55 interest-free days’ and the like.”

Former Citi and Diners Club executive Grant Halverson also explained the reasons for the move.

“BNPL is clearly lending or why does Afterpay have bad debts or collection fees of $ 200 million – the largest expense with 24% of revenue and over 1% of sales?” Mr Halverson told Savings.com.au.

“BNPL aftermarket has been around for years and is nothing new – it is very popular in Asia, Latin America and Africa.

Mr. Kelly was frank in his assessment of the Retro movement.

“They have exhausted their customer growth in Australia and now need to go even deeper into the risky and dashing part of the credit market,” he said.

Global context

Just last week, UK provider BNPL Curve launched ‘Flex’ – a premise similar to Retro – which retroactively applies BNPL payouts to transactions.

However, Curve goes further and allows clients to “convert” transactions made a year ago into “free” or “low interest” loans, according to its CEO Shachar Bialick.

“Curve Flex is almost certainly the most flexible credit solution on the market,” said Mr. Bialick.

“Being able to turn back time and pay later will forever change the way UK customers think about managing their personal finances and cash flow.”

As of September 2020, Flex Beta customers have converted around 7,000 transactions into what Curve openly calls ‘installment loans‘, worth £ 1million (AU $ 1.89million).

See also: Would Credit Regulation Kill BNPL?

Is a credit crisis imminent?

BNPL is currently not subject to the National Consumer Credit Protection Act of 2009 (NCCP) because the NCCP does not apply to short-term loans of less than 62 days.

A Senate investigation in September 2020 also concluded that BNPL providers can self-regulate.

However, that could all change next month as regulators revise the credit framework, according to Mr Halverson.

“ASIC has a new design and distribution obligation [DDO] powers in October – will they use them, who knows? ”he said.

“They certainly should, because it’s not just BNPL – there is now a proliferation of ‘copiers’ who are pushing this loophole to the extreme.

“The net result is that more young consumers are having financial problems. “

DDO powers give ASIC – the Australian Securities and Investments Commission – the power to enforce new provisions, including stop orders and exemption powers.

The new authorities could extend to any financial product requiring a product disclosure statement, as well as credit products covered by the NCCP and short-term contracts not covered by the NCCP.

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