But the products on offer won’t be restricted to the Bintang-induced booze trips to Bali or the party strip of the Gold Coast. It will also be pitched to the broader consumer with the inclusion of a couples trip to the Whitsundays, an adventure trip to Everest and even family packages.
The buy now, pay later service has partnered with Layaway Travel to create the “Play” branch, which provides holidays paid off by the consumer before they travel in weekly or fortnightly payment instalments.
Afterpay group head David Hancock says this allows the holiday-maker to be in better control of their finances and not be burdened with credit card or personal loan debt once the trip is complete.
“We had a lot of communication from our customers saying they really wanted Afterpay available in a form that helped them to responsibly budget for travelling,” he told news.com.au.
Mr Hancock says the concept is the first of its kind and expands on its offering with airlines such as Jetstar.
“What’s very different about what we’re doing with Play is that we’re using our buying power with Layaway to put together really unique destinations but broken down to small bite-size pieces that people pay off before they travel,” he said.
“And that is significantly different from any other travel offer that we’ve seen out there.”
HOW DOES IT WORK?
Users decide on weekly or fortnightly repayments and are then charged $7 for missing a payment. The site will charge a maximum of five $7 fees, which means the penalties are capped at $35.
Afterpay’s head of business expansion, Richard Harris, says the company will then contact the customer to “make sure that the package still makes sense for them”.
“If they don’t want to go ahead with the package at that point in time because of a change in circumstances, there’s complimentary pre-trip insurance,” he said.
“So if it’s something like a DFAT warning or an accident, injury or sickness, that allows them to cancel their trip for free.”
If a customer misses more than five payments in total, the account will be suspended, and the holiday may be cancelled in which case an additional $55 cancellation fee will apply.
SECTOR IN THE SPOTLIGHT
A review by the Australian Securities and Investments Commission (ASIC) in late-November into buy now pay later services detailed the massive growth of the sector.
It found the number of users had ballooned in two years from 400,000 in 2015/16 to two million in 2017/18.
The number of transactions jumped from about 50,000 during April 2016 to 1.9 million in June 2018, with $903 million in outstanding balances at the end of the 2018 financial year.
The watchdog’s commissioner Danielle Press said 60 per cent of buy now, pay later users were between 18 and 34, while 40 per cent earned under $40,000.
“Although our review found many consumers enjoy using buy now, pay later arrangements and plan to continue using them, there are some potential risks for consumers in using these products,” she said.
“We found that buy now, pay later arrangements can cause some consumers to become financially overcommitted and liable to paying late fees.”
Following the review and ensuing Senate inquiry into the sector, Afterpay backed ASIC’s push to expand the product intervention powers that essentially expands on the corporate regulator’s ability to intervene on behalf of at-risk customers.
“When we went through a number of different inquiries and discussions around Afterpay, it’s quite clear that people use it responsibly primarily off the back of debit cards,” Mr Hancock told news.com.au.
“We want to make sure that people have a really good experience as opposed to getting themselves into a position of unmanageable debt.”
He says Afterpay’s assessment checklist for prospective customers has translated to a low rate of consumers falling into debt with the company, which is being implemented on the new brand Play.
“Our net transaction loss rate is around about 0.6 per cent of our portfolio, which shows that we’ve got a very good ability to make sure that the most appropriate people come on for using the Afterpay platform,” Mr Hancock said.
He told news.com.au the spotlight from the corporate regulator and inquiry served to validate the company’s practices.
“It’s really confirmed that Afterpay is a completely different service than other buy now, pay later services out there that charge interest, have many hidden fees and basically look like credit products,” Mr Hancock said.
“There was confirmation that Afterpay is not a credit product, it’s really a payment method by which people can responsibly budget.”
Advocacy group Consumer Action Law Centre policy officer Patrick Sloyan rejected the separation of Afterpay from being a credit product.
He said the group’s national debt hotline was receiving an increasing number of calls from people falling into trouble owing money to buy now pay later services.
“This is not a budgeting tool, it is a debt trap,” Mr Sloyan told news.com.au.
“Afterpay are exploiting a loophole in the national credit laws.
“Our national credit laws are there to protect all Australians by requiring credit providers to make basic checks around affordability.
“By failing to undertake basic suitability checks, Afterpay are setting people up to fail.”
Mr Sloyan said the ballooning debt to the buy now, pay later platforms highlighted by the ASIC review “painted a worrying picture of the financial harm being caused”.
“Afterpay is thriving off consumers late fees — making around $28.4 million from late fees alone,” he said.
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