‘Buy now, pay later’ platform Afterpay has been in the spotlight this week over claims minors can use its services despite not having any savings, prompting the company to insist it already has significant checks and balances in place.
On Wednesday proxy advisory firm Ownership Matters released a report to clients and obtained by press outlining a number of Afterpay case studies, including one about a teenager who was able to order $300 worth of alcohol by billing it through an Afterpay account, reports Fairfax.
The 16-year-old child of an Ownership Matters staff member was reportedly able to order seven bottles of champagne worth more than $300 online, despite only having $80 in their savings account.
In another case, a false account was able to be set up to be used by “Miguel Laucha” — Spanish for ‘Mickey Mouse’. The account was reportedly set up using using a prepaid anonymous mobile sim card and VISA card, and was able to spend $260 on wine and other products.
In response to the report, Afterpay, which booked $60 million in revenue last financial year, told its ASX shareholders it is acting to “curtail any alleged underage use of its platform”.
The company also defended itself by outlining its safety protocols, and said retailers had to follow strict regulations to prevent the selling of alcohol to minors.
Afterpay has seen a meteoric rise after using early social media campaigns to encourage customers to lobby their favourite stores to sign up to the system, which allows shoppers to order stock direct from the store and then pay for this in instalments.
The payments platform uses a model of “factoring” accounts receivables, where the retailer essentially pays a fee for using the service. Afterpay delivers funds to the business when a customer uses the system, then collects instalments from the customer, including a fee for any late payments.
The company says it already employs a fraud and repayment capability check when users sign up to the platform, and rejects around one third of transactions based on that check.
Commercial lawyer and principal at Viridian Lawyers Richard Prangell says even with these assurances from the business, it is likely the ‘buy now, pay later’ space will receive even more regulatory scrutiny in the coming months.
“I would not be surprised if regulators decide to look into players in this space, as well as into those in the cryptocurrency ecosystem,” he says.
This is in part because companies like Afterpay have been an “unbelievable success”, he says.
Having watched the e-commerce tech space for some time, Prangell says payment platforms and cryptocurrency companies are not dissimilar, because both create challenges for the operators when it comes to completely verifying the identify of customers who use the systems.
While there are current licencing frameworks in place for payments providers, he believes regulators may look to increase the checks required before a customer can sign up — and this could include some ‘buy now, pay later’ operators being required to include new terms for merchants around checking the identity of customers.
“There could be some attempting to shift the liability onto the retailer. There are some ways they can do that legally, some ways that are not legal, but either way, businesses might get bitten in the meantime,” he says.
SmartCompany contacted Afterpay, but the company did not make any further comments in addition to its ASX statement.
However, the company has consistently highlighted that it is in its best interests to keep things as easy as possible for small businesses in particular to use the service.
In a statement to the ASX, the company said its losses only amount to 0.7% of payments made on the platform, with the vast majority of customers able to consistently repay the required instalments.