Afterpay allows customers to make purchases and pay it back over instalments. (File photo) Photo: Afterpay
Buy now, pay later provider Afterpay's decision to allow customers to buy fuel and groceries with no payment upfront is raising red flags, a financial inclusion consultant says.
Afterpay has reversed the policy it put in place in March this year to stop people buying essentials they could not afford, sparking concerns among financial mentors.
The short-term lending provider allowed customers to make purchases and pay it back over instalments.
Its move means customers didn't have to pay the first payment at the point of purchase when buying fuel.
Financial inclusion consultant Natalie Vincent told Morning Report the decision had her asking questions.
"Why after only seven months of having a policy in place that was put out there to say 'we're having it this way to encourage responsible spending,' would you change that seven months later, to say 'well this is in response to what customers have said...'"
"That raises a lot of red flags and alarms bells of why they're doing that, it just doesn't seem ideal," Vincent said.
Vincent said customers taking on a line of credit they can't afford was something she saw all the time.
"Overtime that just blows out, it adds on and compounds on top of other debt that they have, and the debt ends up being unmanageable," she said.
"We see it going to debt collections or we see customers approaching community finance organisations to get a reprieve with an interest free loan to pay off Afterpay debt or buy now, pay later debt."
It all came down to untested affordability or unaffordability, she said.
"It's not to say that this is not a good product, a lot of people love it, they use it really well, they say it's good for their cash-flow and managing their finance, but there needs to be protection around that, that it's been assessed that people can actually afford those lines of credit."
On Thursday, Bay Financial Mentors general manager Shirley McCombe told The Panel, Afterpay had been a constant issue for her clients.
"It's gone from being a tool that people use on occasion to being an everyday part of life, and people will prioritise their buy now, pay later account above paying for food, paying for power, paying for rent, and we often see people with so many buy now, pay later payments due in one week that it's more than their actual income."
McCombe said buy now, pay later schemes could prolong and exacerbate the problem.
"Because people in financial hardship are often looking for solutions to multiple problems, they end up with multiple payments that they can't afford and getting further, and further into that spiral of debt," she said.
"It has really profound impacts in other parts of their lives in the way that it affects their credit scores, which makes it really hard to borrow when they need to borrow for something, it affects their ability to get rentals, it affects their ability to get power and all sorts of other things, so it can have a really significant impact for people."
Afterpay said reintroducing no upfront payments for fuel and groceries gave customers greater flexibility, while maintaining its commitment to responsible lending.
"Afterpay is evolving based on customer feedback and strong merchant partnerships," it said.
"Using Afterpay for everyday spending is now mainstream, and by enabling this feature through our trusted merchant network, we're meeting customer demand with safeguards in place.
"Afterpay has no fees for those who pay on time, offering a safe, interest-free alternative to traditional credit cards, helping consumers manage everyday spending responsibly."
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