So you’ve just started a business, and you have read about all the new and efficient ways customers can pay for things. It’s a big enough step to begin accepting payment by applications such as PayPal, but what about delayed payment schemes? Here we will discuss the legalities of ‘Buy now, pay later’ payment methods, and how it will affect your business.
It will make your services more accessible
‘Buy now, pay later’ payment methods are attractive to many customers, because rather than them having a lump some taken from their account in one transaction, smaller amounts are taken in a couple of instalments (normally 3 or 4). This can be a good option for customers who do not have income being paid to them every week, and reflects the way that many people are paid by their employers these days. This is also advantageous to younger people who may not have a consistent source of income. Further, implementing an option for customers to ‘Buy now, pay later’ is particularly useful for businesses which sell products online.
You will have to pay fees
Companies such as Afterpay and Zip Pay make their money on the fees that businesses pay to have these methods available to customers. Normally, this is charged to business through a commission being given to the processing service on each transaction and a flat fee. For example, AfterPay charge a flat fee of 30 cents for every transaction, and then a commission of between 4 and 6 percent on top of that. With Zip Pay, 15 cents is charged for each transaction with a commission of between 2 to 4 percent.
You will have to consider whether you think that customers will use a ‘Buy now, pay later’ service, and how much implementing it will increase sales to determine whether these fees are worth paying.
It could get your customers into debt
Just as the introduction of credit cards in the 1980s saw debt increase amongst consumers, ‘Buy now, pay later’ schemes also run the same risk. It can be easy for people to assume that they can afford more than they actually can when they see a price divided into smaller amounts. With Afterpay, if a payment is not made on time, then a $10 late fee applies. This increases by another $7 after a week has passed. In this sense, late fees can easily accumulate and leave customers in an uncomfortable financial position.
Payments processed by these services ordinarily take around 48 hours to appear in the merchant’s account. Although you get paid the full amount by the service for the transaction, the late fees charged by these payment methods do not end up in your account – they make up a significant percentage of the lenders profits. To determine how missed payments could affect your business over a longer period of time, a business lawyer could advise you on any risks you may face if customers are not paying on time.
‘Buy now, pay later’ services aren’t regulated
Because these payment methods are so new, and have become popular quite rapidly, the law is yet to regulate them in the same way that banks and credit institutions are regulated. In this sense, merchants have more protections when customers pay directly by credit card, rather than through a third-party provider.
The Australian Securities and Investments Commission (ASIC) is currently reviewing the models on which ‘Buy now, pay later’ services run. It is possible that within the next few months, ASIC will implement measures to ensure that customers are not harmed by using these platforms.
In deciding whether you would like to offer a ‘Buy now, pay later’ service, weigh up which products and services make up the bulk of your purchases, and whether introducing these methods would increase sales, or have little to no effect.
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