Avantpay debut generates money and concern
Beforepay has helped Australians get their paycheck sooner and now investors can own a share of the alternative lending action.
“Access your pay instantly. It’s quick and easy to use and there are no hidden fees. Woop,” the company says.
Beforepay Group Limited is set to debut on the ASX on Monday with an expected market value of over $150 million, after rapidly growing its loan book.
Quick credit has been in demand during the COVID pandemic, especially among low-income Gen Z workers.
The fintech company’s pay-on-demand business model is based on fees charged to customers, not interest or late fees, according to the prospectus to investors. For example, the fee for a $500 loan is capped at $25.
Beforepay says their app helps Australians take control, track their spending habits and learn how to budget.
The company, which is still posting losses, raised $35 million in the IPO to help support the costly growth phase.
But some worry that easy money is being offered to people who don’t understand the pitfalls.
“They are internet payday lenders,” Fiona Guthrie, chief executive of Financial Counseling Australia, told AAP.
“And they use a model that gets them out of national credit laws.”
Many Australians are turning to pay-as-you-go services to access their paychecks in advance, according to a survey by Finder late last year.
The national survey found that eight per cent – the equivalent of more than 1.5 million people – have used a pay-per-view service.
Beforepay reported a rapid increase in active users to over 125,500 as of October 31 last year, representing a small subset of potential customers “with zero/limited savings the product may appeal to” .
Some 5.3 million of Australia’s 9.5 million working people aged 20 to 54 could benefit from “short-term, one-time access to cash” because of their financial situation, according to the Beforepay prospectus.
“What’s misleading is that they say it’s your money. It’s not your money, it’s a loan. It’s no different getting a loan,” Guthrie says.
Transactions can also count against anyone trying to get a home loan.
The Australian Securities and Investments Commission has confirmed that products like Beforepay do not fall under responsible lending requirements, meaning there is no legal requirement to check affordability before a person s register.
Pay-as-you-go products are a form of credit, but the structure falls under an exemption from the National Credit Code, an ASIC spokesperson told AAP.
“In effect, fees are capped at 5% of the amount borrowed and interest, when charged, is capped at 24% per annum.”
If a business operates under the National Credit Code, it must have a license to provide credit, must lend responsibly, have hardship provisions for customers who are in financial difficulty, and must join the Australian Financial Complaints Authority.
None of this applies to Beforepay.
But ASIC told AAP Beforepay it voluntarily joined the AFCA, which means its customers have access to a free, independent service to resolve disputes.
“It’s very positive that Beforepay has joined External Dispute Resolution,” says Guthrie.
“But we’re getting away from what the product is, it’s a payday loan.”
Other laws apply.
Beforepay is prohibited from misleading and misleading conduct under ASIC law.
The consumer protection provisions of the ASIC Act apply to pay-on-demand products and allow the regulator to take action in the event of a violation.
The app is also covered by the Design and Distribution Obligations (DDO) recommended by the Royal Banking Commission which came into effect in October, which ensures fair targeting of customers and businesses.
“We continue to engage with consumer advocates to ensure we understand if there is predatory behavior in the pay-per-view industry,” according to the ASIC spokesperson.
Years after the Royal Commission on Banking, financial advisers say dangerous financial products continue to cause harm.
Bettina Cooper, an indigenous financial adviser at the Mob Strong Debt Helpline, spoke in Parliament late last year about a single mother with two children she had been working with for a few months.
“She held the same position for six years, but had to take extended leave due to the health of her family,” Cooper said.
The woman was struggling with her own physical and mental health, she was a victim of domestic abuse, her three-year-old had just been diagnosed with a disability and her teenager was not coping with lockdown or home schooling.
“She was under a lot of stress and felt overwhelmed. Unable to make ends meet, she was very vulnerable to offers of credit, digging a deeper and deeper hole,” Cooper told parliament.
“She had many different creditors when she came to see me. She had MyPayNow, Beforepay, Wallet Wizard, CashnGo, Cash Converters, (Buy Now Pay Later firm) humm, Energy Australia and CBA.”
“I negotiated solutions with all but the payday advance creditors and helped put her in a more sustainable financial position going forward.”
Witnesses said Avantpay may be smaller than the “big four” banks, but has a significant share of the Aboriginal and Torres Strait Islander market.
Guthrie said Beforepay inevitably targets people who may have financial issues and sometimes financial literacy issues as well.
The company did not respond to questions.