Buy now/pay later fintech Afterpay debuts interest-bearing loans | Payment source
Postpaid is no longer just a “Pay in 4” buy now/pay later lender.
Fintech, a unit of Block, is adding a monthly payment option at the point of sale, allowing users to choose to stretch payments for specific items for up to a year, the company announced Wednesday.
The new product enables users to borrow $400 to $4,000, double the maximum available with Afterpay’s core interest-free loans that users typically pay back over six weeks.
Afterpay is now more in line with certain BNPL rivals, including Affirm, which has long offered loan terms of up to 36 months along with the Pay in 4 option. PayPal earlier this year added monthly payment loans which extends to 24 months.
Raising the loan thresholds could expand Afterpay’s market share with online furniture and electronics retailers.
“Afterpay’s new monthly payment option gives buyers a clear view of what they owe at the time of purchase, and that amount will not increase over the course of the payment plan,” said Lee Hatton, head of Cash App Asia Pacific.
The move comes as regulators are intensify scrutiny of BNPL fintech’s operations. The Consumer Financial Protection Bureau recently said it is considering adding “interpretative guidance” to the largely unregulated BNPL industry.
In a detailed report, the CFPB detailed its concerns about fintechs’ BNPL products, including inconsistent policies and the lack of a system to prevent consumers from being overburdened with loans from multiple BNPL providers.
Since its launch in the US in 2018, Afterpay has specialized in offering interest-free loans that users pay back in four equal segments over six weeks. The loans have been a hit with consumers who buy cheaper goods such as clothes, shoes and cosmetics.
Initially, the new monthly option includes loans ranging from six months to 12 months for online purchases. The new feature will be available for purchase in stores next year, according to a press release.
Afterpay calculates the interest on each proposed monthly payment purchase, and the interest will be locked at that interest rate for the duration of the loan.
Afterpay’s APRs for monthly loans can range between 0% and 35%, according to a press release. Afterpay’s loans are offered in partnership with First Electronic Bank, based in Salt Lake City. About 90% of Afterpay’s transactions are refunded via debit card, the company said in the release.
When an Afterpay customer misses a payment, the account is blocked from making further purchases until payments resume.
Afterpay doesn’t charge late fees, but it does send users to a third-party collection firm when loans are 90 days past due. Afterpay does not report repayment data or collection actions to credit bureaus, according to company information.
Blocks last year acquired Afterpay for $29 billion with the goal of extending BNPL loans to hundreds of thousands of its Square small business sellers. By the end of the first quarter of this year, 13,000 Square merchants had processed Afterpay transactions online, according to Afterpay.
