Afterpay-Westpac ‘Retro’ painted with payday loan brush

Afterpay’s new ‘Retro’ feature retroactively splits a payment into four instalments, which critics say is no better than a payday loan or payday advance.

Announced on Wednesday and slated to launch next month, Afterpay’s collaboration with Westpac retroactively splits a payment into four installments, based on a transaction in the past 72 hours.

The Retro feature effectively means that up to $200 is credited to customer accounts.

Users must be a “Money by Afterpay” customer, and while there is no additional charge to use the product, the usual Afterpay late fees apply.

Afterpay Vice President Lee Hatton said the new feature gives consumers an alternative to high-interest payday advance or “pay-as-you-go” apps.

However, Gerard Brody, CEO of Consumer Action Law Center, told Savings.com.au the new feature is “just another credit deal”.

“It … underscores why we need national credit laws to apply to buy now and pay later, including responsible lending laws,” Brody said.

The collaboration with Westpac on the new Money by Afterpay application – where the “Retro” function is located – effectively marks the major bank’s transaction account.

Payments expert Bradford Kelly told Savings.com.au he was surprised Westpac was collaborating on such a move.

“Where’s the regulator? Asleep at the wheel. If that doesn’t get regulators’ attention, nothing will,” Mr Kelly said.

“I am shocked that any bank, let alone Westpac, would allow itself to be associated with such a blatant product.

“Customers who need $200 – and let’s face it, it’s not about budget – are at the end of the road when it comes to credit.

“Why go for the bottom of the barrel, when the gutter is right over there?”

An Afterpay spokesperson told Savings.com.au Retro’s intended use is for budgeting and not lending.

“The retro is part of a customer’s overall Afterpay BNPL limit, not something more,” they said.

“Most importantly, Retro is available for purchases that customers have already made with their Money by Afterpay debit card.

“Like Afterpay, Retro is tied to purchases and is not a cash loan.

“Retro costs nothing to Money by Afterpay customers, provided they pay on time.”

Why does this happen?

Following a less-than-stellar earnings report and a mixed reaction to Square’s takeover, experts say Afterpay’s move is to acquire customers quickly.

Toby Blyth, a partner at law firm Colin Biggers & Paisley, told Savings.com.au the alliance between Afterpay and Westpac was for marketing purposes and ease of scale.

“This is a marketing alliance with Westpac to bring a new product to Westpac’s own customer base and to scale Afterpay, given market concerns about Afterpay’s earnings and viability in the larger market basin. internationally,” Mr Blyth said.

However, Mr Blyth also questioned the direct monetary benefit for Afterpay.

“It cannot charge the merchant, who has already paid merchant fees on the original debit card transaction that is actually being refinanced,” he said.

“Westpac may be paying what is effectively an introducer fee to Afterpay, and recovering the costs via late fees.

“Banks have extensive experience with the ’55-day interest-free’ call effect and the like.”

Former Citi and Diners Club executive Grant Halverson also explained the reasons for the decision.

“BNPL clearly lends or else why does Afterpay have bad debts or collection charges of $200 million – the largest expense at 24% of revenue and more than 1% of sales?” Mr Halverson told Savings.com.au.

“Aftermarket BNPL has been around for years and is not new – it is very popular in Asia, Latin America and Africa.”

Mr. Kelly was candid in his assessment of the Retro movement.

“They have exhausted their customer growth in Australia and now need to go even deeper into the risky and dashing end of the credit market,” he said.

Global context

Just last week UK BNPL provider Curve launched “Flex” – a similar premise to Retro – which retroactively applies BNPL payouts to transactions.

However, Curve goes a step further and allows customers to “convert” transactions made up to a year ago into “free” or “low interest” loans, according to its CEO Shachar Bialick.

“Curve Flex is almost certainly the most flexible credit solution on the market,” Bialick said.

“Being able to go back in time and pay later will forever change the way UK customers think about managing their personal finances and cash flow.”

Since September 2020, Flex beta customers have converted around 7,000 transactions into what Curve openly calls “installment loans”, worth £1 million ($1.89 million AUD).

See also: Would credit regulation kill BNPL?

Is a credit crackdown coming?

BNPL is currently not subject to the National Consumer Credit Protection Act of 2009 (NCCP) as the NCCP does not apply to short-term credit of less than 62 days.

A Senate investigation in September 2020 also concluded that BNPL suppliers could self-regulate.

However, that could all change next month as regulators overhaul the credit framework, according to Halverson.

“ASIC has a new design and distribution obligation [DDO] powers in October – will they use them, who knows?” he said.

“They certainly should because it’s not just the BNPL – there is now a proliferation of ‘copycats’ taking this loophole to extremes.

“The net result is that more young consumers have financial problems.”

DDO powers give ASIC – the Australian Securities and Investments Commission – the power to enforce new agreements, including stop orders and exemption powers.

The new powers could extend to any financial product requiring a product declaration, as well as credit products covered by the NCCP and short-term contracts not covered by the NCCP.

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