It seems it will actually be a challenge to get out an industry code of practice. The "BNPL boys" are actually at odds with one another. I read Zip's announcement tonight and clicked the
link to their recommended policy which I hadn't really looked at before.
Their recommendation #1 would be quite draconian to Afterpay and is definitely a direct shot at us. It's very easy for Zip to recommend this when their product operates like a credit card with minimum repayments of only $40 per month. You could literally spend $1000 on Zip and have to pay only 40 bucks that month. If you spent that much on Afterpay you'd need to pay 2 fortnightly repayments of $250 = total $500. Over 12x what Zip users need to pay. So the bar to pass with income verification is much harder if Zip gets their way.
This is also why Zip has very few late fees, customers only need to pay one payment each month rather than 2x however many transactions they made with Afterpay. E.g. with Thanksgiving sales I made 5 purchases on Afterpay for ~$500. I then had 10 repayments to make the following month of $250 total. If I had've used Zip I would've had just one $40 repayment to make. And if I couldn't pay that I would've been charged one late fee vs up to 10 with Afterpay. The point I'm trying to make though is not that Afterpay is bad but actually Zip deliberately misrepresents the situation when they say they have far better customers, when in actual fact the truth is it's far easier to "pay on time" with Zip.
I don't actually think Zip will get their way, and I believe Zip to be absolute pretenders in this industry. Even the senate report's definition of BNPL does not match with either of Zip's products.
See the following highlight from 5.12 of the report - credit cards are defined as a source of funds for unspecified purposes. That's exactly what Zippay is! They approve you for a credit limit which you can then go and use however you like - i.e. unspecified purpose. Whereas with Afterpay, each individual transaction is assessed based on the specific merchant and even the specific product.
Zippay charges a $6 monthly fee if you don't pay off your balance in full, sounds a bit like a credit card? But it's only 6 bucks? Zip hasn't disclosed average balances, but Afterpay says its customers have average balances of $200. Let's assume the same for Zip - 6/200*12 = 36% interest. Even if you maxxed out your Zip pay account to $1000 to minimise the effective interest rate, you'd be paying 7.2% annualised.
The minimum effective interest rate is actually anywhere between 7.2% and 20.6%, as they actually have some customers on lower limits than a $1000 but still charge the same $6 fee!
Love this 3-way exchange between the two competing founder-CEOs and one of the senators. Slam dunk for Afterpay.
I didn't mean to go on a rant about Zip but I'm sick of their sly little recommendations and misrepresentations. They offer a credit card without the plastic, end-of.
