Buy now, pay later schemes are being looked at by the independent financial regulator the Australian Securities and Investments Commission.
Buy now, pay later schemes are being looked at by the independent financial regulator the Australian Securities and Investments Commission.

Afterpay clamps down on fraudsters shopping

THE nation's biggest buy now, pay later juggernaut is grappling with fraudulent transactions and working to shut loopholes allowing cash-strapped Australians to buy goods.

Afterpay - which turns over $2.4 billion in sales annually - is booming and now has more than 14,000 retailers on its platform and more than 1.8 million customers.

But the company has been in damage control after a series of public embarrassments including a recent case where a child slipped through the cracks and was able to successfully order champagne using Afterpay.

Despite this the company rejects about 50 per cent of all new applicants who try and sign up to the service.

Shoppers are signing up to buy now, pay later schemes so they can pay off goods over time.
Shoppers are signing up to buy now, pay later schemes so they can pay off goods over time.

Afterpay's group head David Hancock said regardless of the company not doing any formal credit checks on customers they were working hard to put more stringent processes in place to stamp out this type of behaviour.

"Clearly there are some things that we are trying to improve and we have systematically rolling that out and this should be completed by the end of financial year,'' he said.

"We have tightened up a number of other things, once fraud was discovered it was a good opportunity to see what we can do."

But consumer group Choice's spokesman Tom Godfrey warned these schemes can quickly get customers into hot water.

Choice spokesman Tom Godfrey said buy now, pay later schemes are another way for consumers to run into financial trouble.
Choice spokesman Tom Godfrey said buy now, pay later schemes are another way for consumers to run into financial trouble.

"It's simply just another line of credit that on top of credit card debts, a mortgage and living expenses can push already cash strapped people over the edge,'' he said.

The financial regulator, the Australian Securities and Investments Commission, has shone the light on these buy now, pay later schemes and will prepare a report to be released later this year.

Of those using Afterpay - an interest-free way to pay for goods - about 22 per cent of customers get stung with late fees.

Customers are buying goods online using buy now, pay later schemes. Picture: iStock
Customers are buying goods online using buy now, pay later schemes. Picture: iStock

Late fees start at a $10 fee and an additional $7 is charged if the repayment remains unpaid seven days after the due date.

Zippay is also another popular buy now, pay later scheme which involves customers applying for a line of credit - to do this thorough credit checks are completed.

But Consumer Action Law Centre's chief executive officer Gerard Brody said the big problem with Afterpay is that it's not required to abide by responsible lending obligations - they fall out of this loophole.

Consumer Action Law Centre’s chief executive officer Gerard Brody said late fees on buy now, pay later schemes can quickly add up.
Consumer Action Law Centre’s chief executive officer Gerard Brody said late fees on buy now, pay later schemes can quickly add up.

"They are not required to make sure it's affordable and suitable for the consumer,'' he said.

"The late fees are also an issue, it's 20 per cent of their revenue."

Barefoot Investor Scott Pape said his concerns remain around these schemes being focused on Millennials.

"What we've seen is companies like Nimble and Afterpay putting a shining 2.0 tech vibe on it when really this is trying to manipulate young consumers."

Mr Hancock said more than 85 per cent of all Afterpay's transactions are linked to debit cards, not credit cards.

 

AFTERPAY

- No credit checks.

- No interest charges.

- $10 for failed payments.

- 78 per cent of customers have never paid a late fee.

- A majority link debit cards not credit cards to the service.

 

ZIPPAY

- Credit checks.

- No fee if balance is paid off in full.

- Minimum $40 per month repayment.

- $6 flat fee if balance is still owing at the month's end.


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