CAFCA - Campaign Against Foreign Control of Aotearoa

Foreign investment in Aotearoa/New Zealand

Overseas Investment Office - November 2021 Decision

Buy Now, Pay Later Debt Trap

Physical credit cards are on the way out (going the way of cheques, with cash following closely behind). Apparently, the way to make purchases now is via buy now pay later (BNPL), which used to be called lay by or hire purchase in the good old days. This is the weaponised electronic version. And the principal practitioner of it in Australasia is Afterpay.

Lanai (AU) 2 Pty Ltd, United States of America (64.24%), Various (29.01%) Japan (2.51%), United Kingdom (2.27%), and Germany (1.97%) is buying 100% of the shares of Afterpay NZ Ltd. This is part of a global buy out of Afterpay for $NZ41 billion. To quote the OIO: "The Applicant is a subsidiary of American company Square, Inc.".

"The Applicant is acquiring 100% of the shares in the Australian company Afterpay Limited by scheme of arrangement under Part 5.1 of the Corporations Act (Australia). Under the scheme of arrangement, Afterpay Limited shareholders will be given shares in Square, Inc in exchange for their Afterpay Limited shares. The transaction will also have the result of Square, Inc acquiring the New Zealand subsidiary Afterpay NZ Limited".

"Afterpay Limited is a financial technology company which owns the intellectual property in a digital payment platform known as Afterpay. Merchants using Afterpay can make sales to their customers on a 'buy now pay later' basis. Afterpay NZ Limited operates the Afterpay platform in New Zealand. The acquisition of Afterpay Limited would allow Square, Inc to combine the parties' complementary businesses in order to accelerate their growth".

"Square itself was started by Twitter founder Jack Dorsey in 2009 to try and disrupt the payments industry. It too has found its business model (which revolves around providing consumers with more convenient ways of using credit and debit cards) increasingly disrupted by BNPL, which circumvents credit card providers altogether. After the acquisition, the merged Square/Afterpay will have a market capitalisation of over NZ$200b...".

"Not bad for a company that was founded barely seven years ago by young Aussies Nick Molnar and Anthony Eison, both of whom have agreed to stay on to lead Afterpay as a division of Square once the transaction closes" (Stuff, 3/8/21, Damian Funnell).

Afterpay is in the business of instant gratification and its target market are millennials. It conducts no credit checks and allows users to take goods home at the time of purchase and the purchase cost is spread over four interest-free payments. But, like anything bought on credit, BNPL schemes such as Afterpay can be a debt trap. "If the payments are charged to a credit card that is not paid in full each month, they'll attract a high level of interest. If any payments are missed, due to a credit card being maxed out or a debit card empty, significant late fees are applied".

"Peter Cordtz, head of community programmes at the Commission for Financial Capability, said the schemes could be a 'slippery slope' into debt for people who could not meet the payment schedules. 'On the face of it these systems seem like an easy way of spreading your payments because you're not getting stuck with fees and interest, but there's still risk', he said. 'You're still borrowing, and you'll catch penalties if you run past the agreed timeline for repayment'" (Stuff, 4/6/19, Susan Edmunds).

"Buy Now, Pay Later Lenders Are Not In Partnership With Ordinary People"

"They are in partnership with retailers. The more users spend, the more Afterpay earns. Afterpay boasts that its 'partners' see a 20% increase in sales, an average order value increase of 40%, as well as a stream of new customers.... Buy now, pay later lenders' focus is gendered, focused heavily on younger women, who prefer it to using credit card debt, which comes with annual fees, high interest rates, and debts that can hang around for years".

"But that old-fashioned plastic credit card brought only a free-floating temptation to spend money the holder didn't have. The Afterpay app is designed to keep people in a state of hyper-awareness of spending opportunities to pursue the imagined lifestyles of the pouting fashionistas of the in-app adverts.... Buy now, pay later is a form of debt " (Stuff, 14/1/22, Rob Stock).

The Afterpay debt trap is not hypothetical. "A mother has issued a timely warning about over-using Afterpay, having spent more than $A16,000 in just ten months by relying on the 'buy now, pay later' service. Afterpay allows customers to purchase an item and split the bill into four fortnightly instalments that are interest-free - provided you pay on time. The company makes about 15% of its revenue through late fees, with $A10 charged for payments not processed before the due date followed by a further $A7 if the sum remains unpaid a week afterwards".

"The service now has roughly 3.1 million customers in Australia and New Zealand combined, according to figures from and around ten million active users worldwide. But many fear it is a slippery slope to significant debt, especially in the lead up to the festive season. The average Australian household spends $A969 on Christmas presents and celebrations, figures from Finder reveal - yet 28% won't have enough savings to cover those costs".

"Instead, they rely on credit cards, loans or services like Afterpay to get through the 'silly season'; a risky approach that can rack up considerable repayments like the mother's $A16,000 revelation" (Daily Mail Australia, 1/12/20, Alice Murphy).

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Campaign Against Foreign Control of Aotearoa,
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