Here's how part-payment platforms turn nasty

Thursday, 22 November 2018

Part-pay platforms are no longer just for online shopping.

Consumer representatives want more regulation of part-payment providers, which offer no-interest payment deals but charge hefty fees if things go wrong.

There are a number of providers in the market, including Afterpay, LayBuy, OxiPay and PartPay.

You can use them to pay off everything from Christmas shopping at Kmart to an airfare. Shoppers receive the item immediately but then pay it off over up to six weeks from their debit or credit card.

If you meet all your payments, it's an interest-free way to spread the cost of a purchase. The merchant pays a percentage of the transaction as a fee.

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Australian regulators have called for reform to target the sector.

But if you don't, it gets expensive.

Afterpay reported that 24.4 per cent of its revenue in the last financial year came from late fees. That has prompted criticism in Australia that the payment providers are causing 'financial stress' for vulnerable consumers. Australian regulators have recommended law reform.

Laybuy charges $10 for every payment that is not made on time and then another $10 if the payment isn't made in seven days. That means you could be charged, in aggregate, $20 for each payment missed or paid late.

Oxipay charges a $10 late payment fee but then passes accounts more than week overdue to its 'collections team' where another $30 fee is added.

Afterpay charges $10 and another late fee of $7 for every week a payment is overdue. Fees are capped at 25 per cent of the total purchase price, or $10 for purchases under $40, $68 for those above that amount.

PartPay charges $8 for a late payment and then $8 a week until it is paid.

If your original purchase was $100, and you were paying it off in instalments of $25 a fortnight, missing one payment could result in the equivalent of an extra payment being added to your bill within three weeks.

Shoppers have limits set on how much they can tick up with each platform, but each operates independently, so it's possible to have accounts running with all the providers.

A spokeswoman for budgeting and financial capability support service provider FinCap said the growth in popularity of the payment methods was a concern, particularly for lower-value goods.

'While in some cases it can help people manage their cash flow, people often don't know what other expenses they have around the corner that might make the Afterpay payment difficult to honour,' she said.

'Our main concern is that other forms of credit have regulations around them such as having to adhere to the Responsible Lending Code or requiring affordability assessments. Because there is no interest charged with Afterpay no regulations apply. While Afterpay like products may not require as stringent regulations as other forms of consumer credit there should be some regulation of the practice, particularly around how defaults are treated.'

Jessica Wilson, head of research at Consumer NZ, said the schemes should come under the Credit Contracts and Consumer Finance Act (CCCFA).

Commerce Minister Kris Faafoi said the schemes were looked at as part of the recent review of the CCCFA but no evidence had been found yet of serious harm.

'However, I am creating a new regulation-making power, which can bring new products such as these under CCCFA, if needed in future.

'I would recommend to borrowers that they check the conditions of these products before using them, as default fees can be charged if they fail to pay any instalments or pay them late and these can be considerable. Any goods purchased have the usual consumer protections under the Fair Trading Act.'

Laybuy would not disclose how much of its revenue was from late fees.

Afterpay said it was working to reduce the proportion of its revenue from late fees.

'Independent research shows 93 per cent of Afterpay purchases never incur a late fee. Late fees are not a source of profit for Afterpay – Afterpay loses more revenue on losses than it collects in late fees, and therefore the platform is deliberately designed to encourage responsible use. This is the complete opposite to a credit product which makes money from interest and late payment fees.

'Credit cards in Australia generate over 68 per cent of their revenue from consumers and around 32 per cent from merchants. Over 75 per cent of Afterpay revenue is from merchants rather than consumers. While Afterpay's total revenue does include a component related to late fees, over that same period Afterpay would have been A$9.3 million or 28 per cent more profitable if there were no late fee payments or losses.'

Laybuy managing director Gary Rohloff said his organisation welcomed any discussion with the regulators.

'Our credit policies use an independent bureau to assess creditworthiness and with continuous credit reporting (CCR) the accuracy of this data is constantly improving. We are confident Laybuy's terms are transparent and simple for consumers.'