(Rewrites; adds details of partnership, background on...

(Rewrites; adds details of partnership, background on Afterpay's rise and on Westpac)

Oct 20 (Reuters) - Westpac Banking Corp (WBC) and buy-now-pay-later firm Afterpay Ltd (APT) will work together to offer savings accounts and budgeting tools in Australia, the two companies said on Tuesday.

Afterpay's more than 3 million customers in Australia will be offered accounts with Westpac, and Melbourne-based Afterpay will gain information on users' finances

The deal marks Westpac's first strategic decision since reaching a record A$1.3 billion settlement with Australia's financial crime agency last month, suggesting it wants to put that chapter behind it and target younger customers.

The popularity of Afterpay and its buy-now-pay-later peers, who let users buy goods and pay over interest-free instalments, has surged over the last nine months as the coronavirus crisis accelerated a shift online.

"This collaboration reflects our strategy to meet the changing needs of customers and demonstrates our desire to partner with differentiated business models that provide alternative ways for consumers to spend and manage their finances," Westpac Chief Executive Peter King said in a statement.

Afterpay said the tie-up opens the door to new streams of revenue. The partnership goes live in the second quarter of 2021.

Afterpay Chief Executive Anthony Eisen said, "We will gather greater insights into how they (customers) prefer to manage their finances and better understand their savings goals."