Afterpay goes retro with layby option to lure younger customers

Buy now, pay later giant Afterpay is beefing up its soon-to-be released banking app, with a feature that will let customers pay household bills in instalments and layby debit card transactions on purchases such as petrol and groceries.

The ‘Money by Afterpay’ app is Afterpay’s major foray into providing banking services to a younger customer base that’s increasingly shunning credit cards and steering clear of the major banks.

The “retro” feature, announced on Wednesday, can be used by customers for up to $200 of their overall spending. Linking instalment payments with selected everyday transactions is already available in Australia, however, Afterpay is hoping the appeal of a debit card that lets users turn any transaction into a layby will prompt younger Australians to bank with the company.

Afterpay’s Lee Hatton says the new retro feature will be a savers ‘superpower.’Credit:Louise Kennerley

Afterpay’s new platforms vice president Lee Hatton said the single-solution app will give customers a ‘one-stop’ app for their money management that doesn’t charge fees beyond those incurred for late retro and standard Afterpay payments.

“Afterpay has really resonated with Millennials and Gen Z who want a way to ‘Afterpay their life’,” she said. “Banking is now a regulatory function, this is more about managing your life in a safe and transparent way.”

The banking app, which will launch next month, is a joint venture between Afterpay and Westpac after the two companies struck a deal last year to offer Afterpay-branded bank accounts.

Afterpay, which was bought in August by US payments player Square (pending approval), is also likely to integrate features from Square’s Cash App into its banking app.

Customers will be issued a deposit and debit card, and apply a 1 per cent interest rate on savings that will be paid by Westpac. This will encourage customers to deposit their salary directly into the app.

The partnership with Westpac means Afterpay won’t require banking licence or need to abide by capital requirements. Afterpay possesses an Australian Financial Services Licence, and can give general financial advice but the financial risk and compliance responsibility will fall to Westpac. “We own the customer experience, they provide the banking functionality, Ms Hatton said.

The ability to retro payments will not be limited to retailers that accept Afterpay but will be restricted to transactions processed in Australia. Like with regular Afterpay purchases, the app will cover the upfront cost to the merchant, and the user will pay their first instalment two weeks after the charge. Provided it is within the users Afterpay limit, and less than $200, the retro feature will be able to be applied to any payment made on the app.

Ms Hatton isn’t overly concerned with the profitability of the new app, “our customers regularly ask us if we can help them Afterpay their life, I’m confident Afterpay plus Money will help them do that as well as create a level of loyalty that money can’t buy”, she said.

Afterpay now has 16.2 million customers worldwide, 3.3 million of them in Australia, where it has nearly 70 per cent of market share of BNPL transactions. In 2020, Afterpay’s revenue from late fees dropped to less than 10 per cent from 14 per cent the year before.

Afterpay’s 2020-21 financial year results, posted in late August, show that its reported earnings before interest, tax, depreciation and amortisation (EBITDA) were $38.7 million, down 38 per cent. Its total loss soared from $22.9 million to $159.4 million, but the gross profit grew to $675,106 from $384,856.

Many consumer groups want BNPL services to be subject to the same laws as credit card companies. But a 2020 Senate inquiry into fintech determined that consumers did not need legal protections when using BNPL services because, at this stage, the industry’s self-regulation provides a satisfactory regulatory framework.

For now, BNPL operators like Afterpay effectively run as unsecured loan books operating outside the scope of financial regulation. This “light touch” regulatory approach from the federal government may change if Afterpay is approved to merge with Square in what would be the biggest corporate takeover in Australian history.

As for it extending the Money app into the mortgage or superannuation space, Ms Hatton said Afterpay didn’t intend to delve into the world of traditional credit but was committed to evolving with the needs of its customers.

“One day [our customers] will want to borrow money to buy a car or property, it’s likely they’d like to invest, and we want to be able to find the best solution while driving home the message around the importance of savings,” she said.

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