• Afterpay is making a major pivot into banking services, unveiling its new Money by Afterpay app to be released in October.
• Offering a savings account and a debit card via Westpac, the company wants the standalone app to become the go-to financial management tool of young Australians.
• Westpac is expected to pay interest to Afterpay customers and a finder fee to Afterpay directly in a bid to access the buy now, pay later company’s user base, while deals with other financial institutions are expected further down the track.
• Visit Business Insider Australia’s homepage for more stories.

Australia’s buy now, pay later darling Afterpay is gearing up to launch its first banking products.

‘Money by Afterpay’ will be a standalone finance app, separate from its current shopping experience, with customers to be issued a “basic” deposit account and debit card.

A 1% interest rate will be paid on savings, comparable to market-leading rates, and Afterpay says the accounts won’t charge any fees.

Slated for an October launch, the project is being headed up by executive vice-president Lee Hatton, who was lured away her position as Suncorp’s banking and wealth CEO by Afterpay just five months into the job.

A director at Xero, and formerly an executive at the Bank of New Zealand (BNZ), NAB and its digital offshoot UBank, Hatton says the new app is the only app young Australians will need to manage their money.

“This is going to be the one,” Hatton told Business Insider Australia. “That’s the goal.”

But she also insists that Afterpay “isn’t building a bank”, with the company positioning the app instead as a simple and accessible personal finance tool with a focus on “money positivity”.

Users will be able to divide their money into as many as 15 different buckets to achieve different savings goals, with interest paid on all of them, with no strings-attached.

“It’s about taking a completely different approach, starting from the premise of, ‘I’m going to spend, now how do I save’, instead of the other way around. This takes a realistic tone to the way that we think about the world,” Hatton said.

While separate from the main Afterpay offering, it’s clear there’s a focus on integration, with users to be able to see all their transactions, purchases, and limits from within the new app. The push to pair financial services with online shopping to create a new financial ecosystem echoes the ambitious strategy now being pursued by the Commonwealth Bank.

“Ultimately, with Money by Afterpay, our goal is to make managing your money simple, frictionless and stress-free,” founders Nick Molnar and Anthony Eisen said in a statement to the ASX.

“Money will broaden our relationship with our loyal customers and also attract a new group that’s looking to streamline how they manage their finances within the debit economy.”

It comes at the same time as Afterpay and rivals face increasing competition as Apple, PayPal, and the Commonwealth Bank pile into the crowded buy now, pay later sector.

The app is a direct collaboration with Westpac, meaning that unlike Australia’s neobanks it won’t require a banking licence or be subject to strict capital requirements.

It has allowed Afterpay to turn around a finance product in the space of ten months, while also avoiding some of the biggest pitfalls experienced by new challengers.

Instead, having acquired an Australian Financial Services Licence (AFSL), Afterpay will be able to offer general financial advice and focus on the “product experience”, while Westpac takes care of everything else, from risk to legal compliance.

“From a business model point of view, all of those [neobanks] needed to do traditional credit products in order to have a sustainable business model … That is just not the case with what we’re doing. We already have a sustainable business model and we’re building on it,” Hatton said, despite arguments that Afterpay is absolutely a credit product.

With no intention to offer credit cards – the product buy now, pay later companies claim to be killing – it raises the question of how Afterpay is actually going to make money from their new venture.

The answer comes down to customers.

Hatton says there are already one million Afterpay customers, predominantly young women, that the company believes are in the “sweet spot” for the Money app.

While not explicitly saying so, ultimately Afterpay is looking to leverage its ability to win young users, who are increasingly alienated by big banks.

As part of its agreement, it will actually be Westpac paying interest to Money users. Interestingly, the Afterpay interest rate is one-third of what the bank already pays its own under-30 customers as part of a long-running promotion to capture the demographic.

On top of that, Hatton says Afterpay will make “a small income from deposits”, suggesting it will receive direct incentive from Westpac for propping up customer numbers.

“Over time, there will be a referral stream – mortgages, super etc – and product enhancements that will drive revenue,” she said, as Afterpay begins pushing users into other financial products, as it offers other institutions “significantly” reduced customer acquisition costs.

With Hatton adding that Afterpay expects to also “increase engagement and frequency” among its own user base while reducing its own overheads, it is clear that rapid growth remains the name of the game.

If it can get big banks, super funds, and other financial institutions to help fund that, all the better.

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