What is it?
Afterpay is an Australian financial technology company that was started in 2015.
It allows Retailers to offer customers a facility to buy now and pay later, without requiring traditional credit. Typically, they pay for goods in four equal payments made every fortnight without any interest charged.
Only the failure to make payments results in fees and charges to the customer.
If you use Afterpay responsibly, there is no effective cost. As outlined below, Afterpay's predominate revenue model is from its member retailers.
Scope
Afterpay - since its merger with Touchcorp in 2017 - now operates in the UK, USA, Australia and New Zealand. Since the merger, Afterpay Touch Group has emerged as a leader in the "buy now pay later" ("BNPL") industry.
The business has undergone significant growth and has been a darling of the ASX.
It has nearly 5 Million customers and over 30,000 merchants including all household retail names. Accordingly to published financial data, they are currently on-boarding more than 12,500 customers each day.
Application
ASIC research revealed that Afterpay earned 24.4% of its income from late fees — and 75.6% from merchant fees.
Whilst 95% of payments have not incurred late fees, concern is that the service may cause a further build up of consumer debt.
Earlier this year, legislation was passed to provide ASIC with 'Product Intervention Powers'. This gives ASIC the authority to intervene where it identifies a risk of significant detriment to retail consumers.
Afterpay has all the Retailers on-board.
Is it Credit?
Officially, there is no credit check performed before you apply for Afterpay, so it won’t impact your credit history initially.
However, Afterpay reserves the right to perform credit checks, and to report negative activity on your account conduct to ratings bureaus, just like with any other source of credit.
Of course, if the payment and/or late fees represent a current commitment, you will need to disclose this when seeking other credit.
Being Spend Smart
So as a tool of credit - there are not too many perils. The bigger picture however is cost control and living within your means.
If payment options like this encourage you to acquire goods that are either beyond your reasonable financial means, or just plain unnecessary, that's bad for your financial health.