Who Pays when you use After Pay, Zip, PayPalx4 etc.

[mel-world]

As someone who still believes 'cash is king' - or, at least, debts should be paid off in a reasonable time, I'm wondering who pays with these, and similar, payment methods.
If so, do you always pay on-time, how much does it cost if you pay late and who picks up the bad debts, the Company of the Merchant. If the latter, does this added to price we all pay?
I've been following the discussion on another thread about credit and debit card surcharges that got me thinking that we might all be paying another 'surcharge' to support those who want to buy now and pay later without interest.

 

[Peter D]

As someone who still believes 'cash is king' - or, at least, debts should be paid off in a reasonable time, I'm wondering who pays with these, and similar, payment methods.
If so, do you always pay on-time, how much does it cost if you pay late and who picks up the bad debts, the Company of the Merchant. If the latter, does this added to price we all pay?
I've been following the discussion on another thread about credit and debit card surcharges that got me thinking that we might all be paying another 'surcharge' to support those who want to buy now and pay later without interest.

I think the profits come from people who do not pay on time. The interest rates then become usurious.

 

[moa999]

Combination of the usurious breakage fees and much higher fees at the merchant end vs standard cc.

Merchants accept it because it brings forward sales but it becomes a drug they can't escape.

 

[markis10]

I think the profits come from people who do not pay on time. The interest rates then become usurious.

Profits come from the merchant fees in most cases, not the delinquent accounts, as an example Afterpay charges 6% of the purchase price while overdue accounts get a flat $10 charge.

 

[mel-world]

Profits come from the merchant fees in most cases, not the delinquent accounts, as an example Afterpay charges 6% of the purchase price while overdue accounts get a flat $10 charge.

Is this 6% added to the cost of the item charged to the customer who uses Afterpay or a cost of doing business adding to the price we all pay? I'd consider this a bigger surcharge, even if I'll never use Afterpay.

 

[markis10]

Is this 6% added to the cost of the item charged to the customer who uses Afterpay or a cost of doing business adding to the price we all pay? I'd consider this a bigger surcharge, even if I'll never use Afterpay.

6% is the amount deducted from the sale, so if I sell a $100 item After pay will remit $94.

 

[mel-world]

6% is the amount deducted from the sale, so if I sell a $100 item After pay will remit $94.

Thanks. I guess we all pay one way or another.

 

[Beer_budget]

An observation from someone who worked retail a long time - you make a mistake in comparing it to credit cards, from a business perspective. Most picked up Afterpay or similar to replace laybys, which are expensive in terms of space (which has a strict $ value in a physical store), staff time to follow up, insurance costs on goods no longer owned by the business, risk to the business of customer complaints etc. This guarantees the sale the same way, but if there are late payments or other issues, it's not your problem.

I feel like it's very similar to the other error the "cash is king" crowd makes, which is assuming cash has no costs to a business vs card transactions. Just because there's a clear % cost you can point to, does not mean the alternative is free, it just means you don't see the cost.

 

[Aeryn]

IME most of the merchants offering Afterpay or Zip Pay are larger retailers, the same ones that dont apply any CC surcharge.

Whilst from a merchant perspective it may be a good replacement for lay-by (reasons outlined by Beer_budget), for consumers who dont have good financial management skills it is less good - allowing them to rack up serious debt without any of the regulation around bank finance such as CCs or personal loans.

I would advise people to avoid AfterPay and its ilk; and only spend money on CCs which you know you can pay off in full when the bill is due.

 

[Beer_budget]

IME most of the merchants offering Afterpay or Zip Pay are larger retailers, the same ones that dont apply any CC surcharge.

Whilst from a merchant perspective it may be a good replacement for lay-by (reasons outlined by Beer_budget), for consumers who dont have good financial management skills it is less good - allowing them to rack up serious debt without any of the regulation around bank finance such as CCs or personal loans.

I would advise people to avoid AfterPay and its ilk; and only spend money on CCs which you know you can pay off in full when the bill is due.

Oh absolutely. From a consumer perspective it is unregulated credit masquerading as layby, and wildly dangerous. It's been widely adopted by businesses because the cost is reasonable on their end.

 

[TomVexille]

IME most of the merchants offering Afterpay or Zip Pay are larger retailers, the same ones that dont apply any CC surcharge.

Whilst from a merchant perspective it may be a good replacement for lay-by (reasons outlined by Beer_budget), for consumers who dont have good financial management skills it is less good - allowing them to rack up serious debt without any of the regulation around bank finance such as CCs or personal loans.

I would advise people to avoid AfterPay and its ilk; and only spend money on CCs which you know you can pay off in full when the bill is due.

The absolute relief from multiple mortgage brokers we have dealt with when we advised we didn't have any of these accounts suggests to me that the banks don't look on them favourably when doing serviceability calculations.

 

[markis10]

Oh absolutely. From a consumer perspective it is unregulated credit masquerading as layby, and wildly dangerous. It's been widely adopted by businesses because the cost is reasonable on their end.

Afterpay is not unregulated credit and has been that way for a while with the national credit code amended in dec 2024 to cover BNPL

IME most of the merchants offering Afterpay or Zip Pay are larger retailers, the same ones that dont apply any CC surcharge.

Afterpay has 200000 merchants in Australia, many of them square clients

 

[Aeryn]

The absolute relief from multiple mortgage brokers we have dealt with when we advised we didn't have any of these accounts suggests to me that the banks don't look on them favourably when doing serviceability calculations.

True its a red flag for traditional lending vs lay-by which was a way to pay over time but not incur debt for a small once off fee.

 

[elanshin]

Afterpay (and other BNPL like afterpay) make the bulk of their money from merchants. There are of course some money to be made from late fees but generally thats nowhere near as much as merchant fees.

Afterpay also forbids merchants fron tacking on an afterpay surcharge - which usually means they will bake it into the price instead and other forms of payment suffer the higher prices.

BNPL are also not all created equal. Some of the variants that the banks offer may actually be credit products rather than pure BNPL.

In all honesty, I'm surprised its gone on this long without serious regulatory oversight and enforcement. Smells like someone high up at afterpay has some government connections.

There are other alternatives that make a lot less like PayPal pay in 4 who are not charging anything extra and basically looking to take back marketshare from Afterpay and they are big enough as a financial entity to absorb any additional costs /losses whilst they fight for market share.

 

[markis10]

Afterpay also forbids merchants fron tacking on an afterpay surcharge - which usually means they will bake it into the price instead and other forms of payment suffer the higher prices.

Afterpay have not been able to do that in Australia and NZ for a number of years following RBA intervention, still is the case in USA via Clearpay

 

[elanshin]

Afterpay have not been able to do that in Australia and NZ for a number of years following RBA intervention, still is the case in USA via Clearpay

That was still active on my agreement with afterpay last year i believe.

 

[Andyc]

I know of some best-in-class merchants getting their fees down to 2-3% in Australia. There is a fixed charge plus a percentage, so there's a bit of variation depending on basket size. Rates in NZ are 0.5-1% higher (common with all merchant facilities).

The BNPL operators are definately enforcing no-surcharge rules. You'll actually find it on some of their websites:
Afterpay (cl. 3.4)
ZipPay

For those types of retailers who historically offered layby, I get that this is much easier. And those same retailers tend to have high rent and high variable margins - so it makes sense to pay a few percent to BNPL and make savings from ceasing/reducing layby.

Beyond those examples, I don't see how BNPL ever becomes mainstream with retailers. BNPL will always be a significantly higher merchant fee and there's little evidence that it drives incremental spend. There is reporting that Afterpay/Zip have bad debts alone in the 1-1.5% range, so they need to cover that in addition to actional financining/processing costs.

The (non-layby type) businessed that I know accepting it, do so because they get paid reimbursements from BNPL operators. So they'll pay >2% merchant fee but then the BNPL operator pays the merchant to 'promote the offering' or some other service/co-marketing contribution.