The business press mocks Beforepay and forgets that it is a payday lender

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As tech-related stocks continue to bubble happily, it’s not just ratings that have become out of touch with reality.

Much like the great tech bubble of 1999, the founders are using the veneer of technology to try to convince speculators and journalists that their dubious business model is worthy of a multiple of income.

Last week a company called Before payment raised $ 4.2 million from investors including former Vocus boss James Spenceley and wealthy young advertiser and Finder co-founder Fred Schebesta. This week on AFR‘s Talk about the street said the company was considering a $ 10 million raise ahead of the IPO.

The business press, including Crikey’s sister post Smart business, beloved by the new start-up, maybe because Beforepay looks so much like the $ 25 billion Afterpay and maybe because Beforepay founder Tarek Ayoub wears cool, see-through glasses.

It seems, however, that no one has bothered to spend a lot of time looking at what Beforepay actually does.

While there is almost nothing in common with Buy Now, Pay Later (BNPL) businesses like Afterpay, that hasn’t stopped Ayoub from creating a tale linking him – noting that Beforepay customers ” we use for anything that BNPL does not offer “and dubbing the company” pay on demand, as opposed to another BNPL offer “.

Ayoub also told the AFR: “Afterpay and other buy-now, pay-ulter are only integrated into around 13% of merchants. So I thought I could create a different way for consumers to access credit.

While Beforepay seems to take advantage of the Afterpay name, it is very clearly a payday loan business, which is nothing new at all. This despicable industry (which is completely legal in Australia and is undertaken by companies like Cash Converters and Wallet Wizard) lends small amounts of money to (usually desperate) borrowers and automatically seizes payment for their next paycheck. .

Beforepay was called Cheq before the founders seemed to realize that they could raise a lot more money by changing the name to something akin to Afterpay.

There’s a reason payday lenders are some of the most hated businesses in the world: They target the desperate and charge usury fees. Federal Labor MP Milton Dick targeted payday lenders in February, accusing them of being predatory and unscrupulous.

Before payment, of which terms and conditions still refers to its old business name Cheq, charges users a flat rate of 5%. While this is significantly less than lenders like the obnoxious Cash Converters (who charge a 20% set-up fee and a 4% fee on small personal loans), it is not cheap given the short time frame. reimbursement.

The actual level of interest charged depends on the date of the borrower’s next payment date (and how often they are paid). But a person paid monthly can delay repayment by a pay cycle, so the average loan term is likely to be around a month. That’s an effective annualized interest rate of just under 80%.

If you pay off the debt sooner, the rate is much higher, albeit lower than traditional payday lenders who charge fees and interest.

Prepayment effectively cuts borrowers off if they don’t repay their debt, which can force them to embark on a longer catastrophic cycle by imposing even higher interest rate products to pay off the previous product at cost. raised.

When an app-based payday lender using largely outsourced technology suddenly becomes a trending fintech and receives obscene articles in our leading financial newspaper, it’s time to start dusting the bell.


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