Afterpay's new 'virtual card' allows shoppers to pay with a tap of their cellphone

Shopping in-store just got faster, as Afterpay customers are now able to pay with a tap of their cellphone.

Afterpay is a form of 'buy now, pay later', giving instant gratification to shoppers who don't want to use their own money to pay for things upfront. Under the old-fashioned layby, a deposit was paid upfront and goods were held by the retailer until the full balance was paid. Now, items can be paid off over six weeks - but they're taken straight away.  

Available in New Zealand since September 2017, Afterpay is effectively an interest-free loan taken over six weeks. Shoppers using Afterpay as a payment option split the cost of their purchase into four instalments: a  quarter (25 percent) is paid upfront and the rest is paid over three fortnightly instalments. It's available at most retailers nationwide, including fast-fashion store Glassons, and for online purchases made through cut-price retailers such as Kmart and Spotlight.

From mid-May, Afterpay's new 'virtual card' allows purchases to be made by tapping the payment terminal in-store. Afterpay co-founder Nick Molnar said the service is currently available at around 50 New Zealand stores, with more added daily. 

"The new Afterpay virtual card, which will sit in a customer's digital wallet, is an evolution of our offering, making it even easier for thousands of our Kiwi customers to split their in-store payments in four instalments without incurring interest - ever," Molnar said.

The Afterpay mobile app can be downloaded on a Smartphone or iPhone and runs off a digital wallet, such as Apple Pay or Google Pay. Existing customers can start using the virtual card by tapping the 'card' tab in the Afterpay app and adding it to their digital wallet.

Although Afterpay encourages shoppers to buy what they want, when they want it, Molnar says the company wants to grow a community of "responsible spenders". Those new to the service are initially given a low limit, which increases once they prove they're good payers.

"Afterpay's spending limits start at $600 and only increase gradually...the longer a person has been a responsible customer with Afterpay - making all payments on time - the more likely we will be to approve their purchases and the more likely the amount you can spend will increase," Molnar said.

As with all buy now, pay later services, Afterpay users are encouraged to think about affordability and the total cost before spending. 

If payment isn't made by the due date (and the automatic payment fails), Afterpay charges a $10 late fee the following day. A further $7 fee is charged if payment isn't made within seven days.

Molnar said most customers have a debit card loaded to their account and can avoid these charges by making payments on time. Afterpay sends reminders to customers before payments are deducted. Customers can choose to pay early, using the 'pay now' button in the app or online.   

"Afterpay has capped late fees to a maximum total of $68 or 25 percent of the purchase price, whichever is lower, so that they don't incur additional costs," Molnar added.

Keith McLaughlin, managing director of Centrix confirmed 57 percent of 18-24 year-olds in New Zealand have a buy now, pay later account.

"This is a very good entry point for people to start to build a good credit profile," McLaughlin said.

For those who manage it properly, buy now, pay later isn't expensive, as customers only pay the purchase price. But people using multiple buy now, pay later services should make sure they aren't taking on too much debt.

"As there's no visibility of what total indebtedness is, you need to make sure that you don't spread your money too wide - particularly if circumstances change," McLaughlin added.

Unlike other buy now, pay later services such as GenoaPay and Laybuy, Afterpay doesn't use credit bureaus and doesn't do credit checks.

John Bolton, chief executive of mortgage broker company Squirrel, said as Afterpay transactions show up on bank statements, for those wanting to apply for a mortgage, banks will generally take them into account. 

"Banks suck Afterpay payments into servicing calculations, which can reduce the amount you can borrow. It's better to not have any of this when applying for a mortgage," Bolton said.