Afterpay - yay or nay?


With online shopping experiencing a massive boom during the coronavirus pandemic, Afterpay has continued to go from strength to strength. The ‘buy now, pay later’ provider is a global phenomenon – but is it the right option for you when making a purchase?*

Afterpay is a 'buy now, pay later' (BNPL) instant lender. It divides your purchase amount into four payments made over eight weeks. Instead of paying interest, you're charged fees for late payments. Afterpay is one of several BNPLs available to consumers today. It recently made headlines when US giants Square agreed to acquire the Australian company for $39bn.

Founder, Nick Molnar has described it as a “service for millennials that can help them spend responsibly and also help retailers sell more stuff.”

It may be targeted at millennials, but Afterpay is available to all consumers - and along with other BNPLS, it's growing in popularity. 

Is this a good thing? You be the judge.

How does Afterpay make money?


Key Points


  • Afterpay is a buy now, pay later provider that divides your payment into instalments 
  • According to RateCity, almost one third of people who use BNPLs find themselves in financial trouble 
  • If you are going to use Afterpay., CHOICE and MoneySmart recommend linking payments to a debit card instead of a credit card

The company reportedly charges merchants a flat fee of $0.30 per transaction, plus a commission rate between 4% and 6% per transaction.

Unlike credit cards, where the fee is generally passed on to the consumer at checkout, the merchant is required to pay this cost for the ‘privilege’ of using the platform. For many businesses looking to grow their online presence and boost sales, it’s proven to be a worthwhile investment.

Afterpay also makes money from customers via late fees. 

Similar pricing schemes are used by other BNPLS. It's a successful business model, even if it's not always good news for customers.

Buy now, pay for it later


CHOICE magazine has expressed concern that the BNPL model normalises debt and is risky for those on lower incomes. This includes older Australians reliant on the Age Pension as their sole source of income.

Other examples of BNPLs include:

  • Brighte
  • Humm
  • Klarna
  • LatitudePay
  • Openpay
  • Payright
  • Zip Pay.

Regarding Afterpay, US Finance Author, Rachel Cruze issued this warning: “Don’t go into debt and don’t let Afterpay creep into your mindset. If you don’t have the money, don’t buy it.”

Millennials may roll their eyes, but the logic is sound – especially if you can’t keep up with your payments.

According to a 2020 ASIC report**, 1 in 5 consumers using BNPL providers were missing payments, with missed payment fee revenue totalling over $43m in the 2018-19 financial year. One can only imagine that number now, amid the COVID-19 pandemic and online shopping boom.

Spiraling debt is a real concern


If you are late on a payment, Afterpay charges you an additional $10 on top of what you owe. For purchases above $40, late fees are applied every week until either the balance is paid off or the fees total 25% of the loan’s value (or a maximum of $68 for orders above $272).

Confused yet?

The issue is compounded when your payment is linked to a credit card and you fall behind on those payments as well.

Even if you meet your Afterpay requirements, the additional cost added to your credit card bill could cause unwanted financial stress.

It can also be difficult juggling repayments with your other financial commitments. This is an important consideration, particularly as we head into the festive season.

Although Afterpay has the ability to prevent consumers with overdue payments from making additional purchases, its application is anything but consistent, according to critics.

Plus, if you’ve made several online purchases in quick succession, you could be facing significant debt before you’ve even received the items. The damage has already been done.

Impulse buying and addiction


According to RateCity, almost one third of people who use BNPLs find themselves in financial trouble with more than half admitting they were more likely to impulse buy. There’s also the very real issue of online shopping addiction, which is expertly covered in this article from The Conversation.

If you think this is only an issue for millennials, consider how quickly the credit card has evolved as a payment option. These days, it’s almost impossible to make a hotel reservation or flight booking without one. This wasn’t always the case. 

As Afterpay becomes more readily available to consumers, the risk to older Australians also increases.

It can't all be bad, right?


In theory, there’s nothing inherently evil about Afterpay.

Like any form of credit, Afterpay can be used to effectively manage your cash flow. If you stay on top of your financial obligations and set payment reminders, you are less likely to fall behind. In this case, Afterpay is certainly a viable payment option.

But as we mentioned earlier, things can get out of hand pretty quickly. Waiting until you’ve saved enough money to purchase an item upfront is still your safest option.

Top tips


If you do use Afterpay, CHOICE recommends taking additional precautions like setting up payments with a debit card instead of a credit card and adhering to strict spending limits. Similar advice has been provided by the federal government’s MoneySmart website, which you can read here.

It is also worth contacting Afterpay if you are unable to make a payment as they have the discretion to “waive wholly or partly, any late fee.”^

Before using Afterpay or a similar BNPL provider, it is recommended that you do your research.

Learn more here.

Share your thoughts


Have you used a BNPL provider? We would like to hear about your experiences.

Contact us today

Help available for those in need


If you are struggling with financial stress or depression, or are having a difficult time in general, please call Lifeline on 13 11 14.

You can also call the National Debt Helpline on 1800 007 007.

*The information provided in this article has been collected from multiple sources and should not be deemed financial advice. References to rates, figures and data may change over time and without notice. Any decision you make regarding the use of Afterpay or any other payment scheme or financial product is entirely your own. It is recommended you seek the advice of a qualified, trusted financial professional before making a major financial decision or investment.

**Latest data on buy now pay later industry. Source: ASIC.

^All information relating to Afterpay obtained from its website is accurate at the time of publication. Refer to the Afterpay website for the latest terms, conditions and information.