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Beforepay’s debut raises money and worry

Beforepay has been helping Australians get their salaries early and now investors can own a slice of the alternative lending action.

“Get access to your wages instantly. It’s quick and easy to use and there’s no hidden fees. Woop,” the firm says.

Beforepay Group Limited is scheduled to debut on the ASX on Monday with an expected market value of more than $150 million, after rapidly growing its lending book.

Quick credit has been in demand during the COVID pandemic, particularly among low-income Generation Z workers.

The financial technology firm’s pay-on-demand business model is based on customer fees, 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 spending habits and learn how to budget.

The firm, still making losses, has raised $35 million in the initial public offering to help support the costly growth phase.

But some are concerned easy money is being offered to people who don’t understand the pitfalls.

“They’re payday lenders on the internet,” Fiona Guthrie, chief executive of Financial Counselling Australia, told AAP.

“And they’re using a model that takes them outside the national credit laws.”

Many Australians are turning to pay-on-demand services to access their salary ahead of time, according to a survey by Finder late last year.

The national survey found eight per cent – equivalent to more than 1.5 million people – have used a pay-on-demand service.

Beforepay reported a rapid rise in active users to over 125,500 as at October 31 last year, which represents a small subset of the potential customers “with no/limited savings to whom the product may appeal”.

Some 5.3 million of the 9.5 million workers aged 20-54 in Australia could benefit from “short term, non-revolving access to cash” due to 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 to getting any loan,” Guthrie says.

The transactions can also count against anyone trying to get a home loan.

The Australian Securities and Investments Commission confirmed products like Beforepay fall outside responsible lending obligations, which means there is no legal requirement to check affordability before a person signs up.

Pay-on-demand products are a form of credit but the structure fits within an exemption in the national credit code, an ASIC spokesman told AAP.

“This is because the fees are capped at five per cent of the amount borrowed and interest, where charged, is capped at 24 per cent per annum.”

If a company operates under the national credit code, it has to have a licence to provide credit, must lend responsibly, have hardship provisions for customer who get into financial trouble and must join the Australian Financial Complaints Authority.

None of this applies to Beforepay.

But ASIC told AAP Beforepay has voluntarily joined AFCA, which means their customers do have access to a free and independent service to resolve disputes.

“That is very positive, that Beforepay has joined external dispute resolution,” Guthrie says.

“But there’s go getting away from what the product is, it’s a payday loan.”

Other laws do apply.

Beforepay is prohibited from misleading and deceptive conduct under the ASIC Act.

The consumer protection provisions of the ASIC Act apply to pay-on-demand products and enable action by the regulator on breaches.

The app is also covered under the design and distribution obligations (DDO) recommended by the banking royal commission that took effect in October, which make sure customers and businesses are fairly targeted.

“We continue to engage with consumer advocates to ensure that we understand whether there is predatory behaviour in the pay-on-demand sector,” according to the ASIC spokesman.

Years after the banking royal commission, financial counsellors say unsafe financial products are still causing harm.

Bettina Cooper, an Aboriginal financial counsellor at the Mob Strong Debt Helpline, told parliament late last year about a solo mother with two children she had been working with for a couple of months.

“She was working the same job for six years but had to take an extended leave of absence due to the health of her family,” Cooper said.

The woman had been struggling with her own physical and mental health, she was a victim of family violence, her three-year-old had just been diagnosed with a disability and her teenager was not coping with lockdown or homeschooling.

“She was under a great deal 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 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 wage-advance creditors and I’ve helped to put her in a more sustainable financial position moving forward.”

Witnesses said Beforepay may be smaller than the “big four” banks but takes a big share of the Aboriginal and Torres Strait Islander market.

Guthrie said Beforepay inevitably targets people who may have some financial issues and sometimes financial literacy issues as well.

The company did not respond to questions.

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