Afterpay: Compliant or not

Everyday Islamic Finance Business and Career Questions
#1

Salam Mufti sahab,

Hope all is well at your end. I was reading about Afterpay, an Australian company. They are a Fin-Tech company and the business model is highlighted in the article below.

Following is a snippet from the article that explains the business model

"Afterpay is a financial technology company based in Sydney, Australia, that’s focused on providing “buy now, pay later” payment solutions that allows customers to pay for products with installment plans. For example, The Gap is an Afterpay partner, and consumers on The Gap’s website can choose to check out with Afterpay which enables them to receive their product immediately but pay for it in installments over a six-week period.***

How is buy now, pay later different from purchasing with a credit card? Afterpay doesn’t charge interest on items purchased. If a customer makes all the payments on time, they do not pay a dime over the original purchase price. Afterpay does charge late fees for missed payments, however, late fees are capped at 25% of the original purchase price so consumers won’t end up with huge debt burdens over time.

This all sounds great for the consumer, but how does Afterpay make money? It primarily makes money by charging merchants a processing fee of around 5%, which is higher than a standard payment processing fee but enables merchants to sell more volume than they would otherwise.

Can you please guide us if its compliant or not?

Best,
Furqan

#2

Assalaamu alaykum,

Most BNPL products are Hawalah transactions from a Shariah perspective. They effectively give a loan to the customer by paying the merchant in advance.

So here, Afterpay agrees to pay the merchant on behalf of the customer, with the customer to pay Afterpay at a later date.

Since it is Hawalah, they can only charge for actual expenses. They cannot profit from here.

One way to test this is to compare their processing fee with the market. Since their processing fee is higher, there is a suspicion that it has a component of profit and could fall under shubhat al Riba. Unless a factual documentation of their costs against which this 5% is being charged is presented, it would be a doubtful contract and better to avoid.

Allah knows best

#4

Jazakallah khair, Mufti Sahab. Would you deem the following activity from Shopify compliant?

#5

Wa alaykum salaam,

The borrowing cost hints to Riba and this product should be avoided.

#6

Assalamu’alaikum,

Currys PC World allows some items to be able to be paid later interest free for 24 months. Is this allowed?

#7

Assalamu Alaykum Warahamatullahi Wabarakatuhu Mufti saab,

Further to your above reply, I understand that from a Merchants point to avoid Afterpay, however as a consumer would it be allowed to use Afterpay for purchases given there is a late fee involved?

Jazakumullah Khaira.