Afterpay launches a savings account. Here’s what you need to know

Afterpay will become a bank in October, removing the middleman by allowing customers to deposit their payment directly on its platform.

The Buy It Now, Pay Later (BNPL) Giant say it’s ok offering no-fee bank accounts with a 1% savings rate in an effort to convince millennials to ditch their established bank.

Everything is legal under the aegis of Westpac’s banking license, which was extended to Afterpay’s brand “Afterpay Money” in October.

But it’s unclear how Afterpay will use customer bank data to advance its spend-driven business model, which rakes in millions of dollars each year from late payment fees.

“Combining money management with the BNPL offering will allow us to help customers spend, save and play,” Afterpay executive Lee Hatton said in a statement to investors on Tuesday.

“We will provide new and unique features to customers.”

The latest announcement comes less than a week after Afterpay shares fell on news that tech giants Apple and Paypal would enter the BNPL market with offers directly targeting the Afterpay model.

All in response to the gold rush in financial services caused by a flood of mostly younger customers abandoning traditional credit cards and the big banks that sell them.

The move will see Afterpay expand its reach from retail payments to its customers’ core financial business, while Westpac will gain a share of BNPL’s rapidly growing market after Commonwealth Bank struck a deal with rival BNPL supplier Klarna in 2019. .

The new Afterpay app. Photo: Supplied

Competitive savings rate

Afterpay’s new banking app will be called Money and is open to Australians with a BNPL account, including three million existing customers.

In addition to deposit and savings accounts, the app will also offer free debit cards and digital wallets to customers.

The 1% savings rate is more than double the 0.4% rate offered to most Westpac customers, but lower than the highest market rates at banks like ING (1.35%) and AMP Bank (1.25%).

And ironically enough, given that Afterpay is targeting millennial customers, if you’re between the ages of 18 and 29, Westpac’s Life account will offer a much higher savings rate of 3% if you have a deposit below $30,000.

The main difference with Afterpay’s product is that it won’t attach any savings or spending conditions to its savings rate – which Sally Tindall, RateCity’s research director, called a very attractive offer.

‘It’s a really smart offer – they’ve taken out the tricky terms,’ Ms Tindall said The new daily.

“Afterpay is offering 1% on balances up to $1 million on each of 15 different savings accounts.”

In other words, if you have $15 million lying around, Afterpay will be the market leader to park your pocket money.

But if you have less than $100,000 in savings, you’ll likely find a much better deal elsewhere.

Should you use Afterpay?

Although Afterpay’s savings rate is competitive, big question marks surround giant BNPL’s ambitions to become a banking service.

For starters, Afterpay makes money by convincing you to spend, not save.

Short-term credit will remain the company’s main source of money, although the company insisted on Tuesday that it wanted to help people take control of their finances by offering stress-free savings. complex conditions.

Ms Tindall said the proof would be in the pudding, particularly regarding how Afterpay will share data between the spending and savings parts of its business.

“On the one hand, it’s a great opportunity to do more comprehensive credit checks on BNPL customers,” Ms Tindall said.

“[On the other]their platform has focused primarily on spending and the two don’t necessarily go hand in hand.

“If they reverse that and their goal is to encourage people to spend and budget, it will be interesting to see if people start spending less.”

A study by corporate regulator ASIC previously found that around 20% of BNPL customers struggled to repay their debts on platforms like Afterpay.

These debts then prevent them from meeting other financial obligations, according to the research.

Afterpay’s banking app will allow users to track upcoming credit repayments in a way that could help them avoid late payment fees.

But it could also be used to entice customers to spend even more money.

Afterpay said it would allow customers to open up to 15 accounts because it wanted to help them target “different savings goals and buy different things based on their specific needs.”

An Afterpay spokesperson said the BNPL app and the Money app will be largely separated, to “respect the separation of the two experiences”.

But they said there will always be a crossover between the two services.

“We will be offering a link to the store app in the money app and also opportunities in the future to link wishlist items from the store app to savings goals in the money app,” the spokesperson said.

“But it’s important that we follow the customer’s lead and respect their cues.”

Comments are closed.