Contents:
- Why is Afterpay now conducting “soft credit checks” after repeatedly stating that it would not?
- As a seller, is there any action that I have to take?
- Who will see an initial drop in their spend limit? Who will see an initial increase in their spend limit?
- Will this change affect the number of new customers I receive from Afterpay / will this change lead to lower customer approval rates from Afterpay?
- Will I see a drop in purchases from customers using Afterpay as a result of this change?
- Could this change affect my average order value (AOV) or my sales/gross merchandise value (GMV)?
- What about existing customers? Will you use consumer reports to personalize their experiences?
- Will customers be able to raise their limit with a good repayment history?
- Will Afterpay report non-payments to credit bureaus for customers who have undergone “soft credit checks?”
- Will this decision affect upcoming/future products?
- How does this compare to what Klarna and Affirm are doing in the market?
- When do customers see their initial spending limit? Can customers create an account and see spend eligibility without actually transacting?
Why is Afterpay now conducting “soft credit checks” after repeatedly stating that it would not?
As the BNPL market evolves, we want to make sure that we are:
- Continuing to align customers’ financial health with their initial spending limit so that they don’t overextend themselves when they make purchases
- Providing our sellers with additional growth through the products and features we create, both now and in the future
- Matching or exceeding industry standards and best practices
Therefore, Afterpay will begin to use consumer credit reports and conduct “soft credit checks” for new US customers who sign up for Afterpay in an effort to improve consumer outcomes, open up innovative growth opportunities for our sellers, and better align with BNPL industry practices.
It should be noted that soft credit checks (also known as soft pulls or soft inquiries) are very common and will not affect credit scores, will not be visible to other lenders or creditors and may or may not be recorded in credit reports, depending on the credit bureau.
As a seller, is there any action that I have to take?
Yes, if you currently have any Afterpay branded marketing materials or messaging that was created by your team that includes the terms “No Credit Check,” “No External Credit Check,” and/or any derivation of “$600 limit,” you will need to remove this messaging from your site and any marketing materials.
If you do not have any Afterpay-branded marketing materials that includes these terms, then you do not need to take any action.
All assets/messaging/etc. that is on your site that Afterpay controls will be updated automatically by Afterpay. There is no extra integration required as a result of this policy change.
Who will see an initial drop in their spend limit? Who will see an initial increase in their spend limit?
We estimate the majority of new Afterpay customers will see the same initial spend limit as before, or will have an increased spend limit. For those who do have a lower initial spend limit, the limit can be increased at Afterpay’s discretion after an initial purchase is made and a number of on-time payments have been completed.
Will this change affect the number of new customers I receive from Afterpay / will this change lead to lower customer approval rates from Afterpay?
Although individual merchant approval rates will vary, we do not anticipate a significant change in approval rates due to our use of soft credit checks. Using these checks will help us to determine a customer’s initial spending limit with Afterpay. Soft credit checks will only be used to decline new customer transactions in rare circumstances where we are required to. These circumstances might include a customer whose identity we are unable to identify or if a customer has placed a freeze or alert on their credit report. We anticipate this to be an incrementally small variance (less than 1%) from our previous decline rate.
Frozen credit is when an individual puts an alert on their credit file asking for a freeze on activity or new accounts. A credit freeze will limit others from viewing their credit reports, including lenders. An individual may do this if they are dealing with identity theft.
Will I see a drop in purchases from customers using Afterpay as a result of this change?
Based on our modeling, we anticipate that on average, vast majority of first purchases from new Afterpay customers will be approved after implementing this change. Individual merchant results will vary.
Could this change affect my average order value (AOV) or my sales/gross merchandise value (GMV)?
Individual merchant results will vary. However, there will be new Afterpay customers that now will have a higher initial spending limit as a result of this change, which could lead to increases in seller AOV and GMV.
What about existing customers? Will you use consumer reports to personalize their experiences?
No. We will not use US consumer reports to personalize the current Pay-in-Four experience for existing Afterpay customers.
Will customers be able to raise their limit with a good repayment history?
Yes, and this has always been the case. We have a dynamic ongoing spending limit management framework which will award customers' good repayment behavior by increasing their spending limit.
Will Afterpay report non-payments to credit bureaus for customers who have undergone “soft credit checks?”
Currently, Afterpay does not report late payments or non-payments to credit bureaus.
Will this decision affect upcoming/future products?
This decision will allow Afterpay to create new, innovative products and features for merchants that potentially could lead to higher incremental sales, AOV, share of cart, new customer acquisition, and other key metrics that define business growth.
How does this compare to what Klarna and Affirm are doing in the market?
According to their websites, Klarna and Affirm both use soft credit checks for their Pay in 4 products and do not report to credit bureaus on 0% APR purchases.
When do customers see their initial spending limit? Can customers create an account and see spend eligibility without actually transacting?
There is no change to when or how a customer views their initial spending limit with the addition of credit checks. If the customer registers through checkout, they will not see their limit until after making their first order. This has always been the customer flow and there are no changes after the credit check launch.