Afterpay is an increasingly popular payment option that allows customers to pay for their purchases in four installments without any interest or additional fees. You can use it in stores, online, and in mobile apps. With its convenience and flexibility, more and more businesses are adopting Afterpay as a payment option. But before you do, there are some things you should know about Afterpay, including whether or not you need a license.
How Does Afterpay Work?
Afterpay allows customers to make purchases now, and pay for them later. They pay some amount upfront – usually about 10%-20% of the total cost of the item – plus interest and a service fee. They make the remaining three payments over the next month. Once the customer has paid off the item, they can keep it. There are a few restrictions – customers must have a good credit score and be at least 18 years old, for example – but Afterpay works for a variety of industries, and is a flexible payment option that can help increase your sales. That’s why more and more businesses are adopting Afterpay as a payment option.
Do You Need a License to Use Afterpay?
Currently, Afterpay serves as a payment facilitator between customers and merchants. That means that, unlike with a credit card, the company never actually has your money. However, the Australian Securities and Investment Commission (ASIC) is currently investigating whether or not Afterpay should be classified as a licensed lender. They’ve received several complaints against Afterpay, so the future of Afterpay in Australia is unclear. If Afterpay is deemed to be operating as a lender, then businesses using Afterpay will need to have a license to do so. It’s unclear what would happen to businesses that use Afterpay and do not have a license; however, likely, Afterpay will simply cease operations in Australia.
The Benefits of Using Afterpay
The obvious benefit of Afterpay is increased sales. Afterpay users are less likely to return their items, so you’ll have less lost revenue on returns, too. However, Afterpay also has other benefits for businesses that use it. You’ll have better cash flow since you’ll be receiving payments over time. There are no set-up or monthly fees to use Afterpay, and it’s easy to integrate into your website or app. And the fees charged by Afterpay are reasonable: the upfront fee (which is a percentage of the total cost of the item), a service fee, and interest.
Steps to Obtaining an Afterpay License
If Afterpay is deemed to be a lender in Australia, businesses that use Afterpay will need a license. Currently, ASIC doesn’t have any rules and regulations for businesses using Afterpay, but that may change. Businesses that want to use Afterpay should keep an eye out for any new announcements from ASIC. If ASIC determines that Afterpay is a lender, businesses will have to obtain a license to use the Afterpay payment method. You can apply for an Australia Credit License.
As mentioned above, Afterpay charges merchants some fees, including an upfront fee, a service fee, and interest on the total amount paid by the customer. The upfront fee is a percentage of the total cost of the item – 10% for example. The service fee is 9% and the interest rate is 19.99% p.a. (at the time of writing). However, if you use Afterpay and then fail to collect the money from your customers, you’ll be charged a $10 late fee per month per item.
The best methods to use as an alternative to Afterpay are a merchant credit facility and a deferred payment facility. A merchant credit facility is like a line of credit, where you’ll receive a certain amount of money upfront and pay it back over time. A deferred payment facility is a type of credit where a customer can defer payment for a set period. If you’re unsure about which to choose, speak with a licensed financial services provider. Another option is to use a third-party payment processor, like Payability or PayPal, to collect payments. However, these methods typically have higher fees than Afterpay.
If Afterpay is deemed to be a lender, businesses using Afterpay will need to obtain a license. Currently, Afterpay serves as a payment facilitator between customers and merchants. That means that, unlike a credit card, the company never has your money. The best alternative payment methods to Afterpay are a merchant credit facility and a deferred payment facility.