AfterPay CEO: ‘Huge surge’ away from credit to debit cards as consumers keep spending

The COVID-19 pandemic has brought changes to almost every aspect of daily life — including how many consumers choose to shop and spend their money.

With many consumers turning to online shopping and ramping up the frequency of web-based buying, AfterPay co-CEO Nick Molnar said his company has been at the epicenter of a massive shift toward debit card usage, mirroring other macro trends.

“We've seen a huge surge globally to debit card usage away from credit cards,” Molnar told Yahoo Finance in an interview this week. “Debit cards had double digit positive year on year growth whereas credit cards had a negative double digit year on year growth.”

The ‘buy now, pay later’ company’s data coincided with recent figures from the Federal Reserve, which noted a “remarkable drop” in credit card balances across the board in the first quarter of 2021. And as the virus raged last year, locked-down Americans paid off credit debt in record amounts — which has helped send the average credit score soaring.

AfterPay’s experience bolsters the idea that, when it comes time to pay, consumers are increasingly more likely to reach for a debit than a credit card. Indeed, about 90% of Afterpay’s consumers are linking their accounts to the former rather than the latter, Molnar told Yahoo Finance.

He also suggested there’s some hesitancy from consumers to use their payment option at checkout. Consumers believe they will be hit with an interest charge if they pay back on time, but that's not the case: The company actually charges the retailer a small fee.

However, Afterpay does perform credit checks and will report negative activity on the consumer's account — which may result in a hit to their credit scores, just like with any other source of credit. This includes things like late or missed payments, defaults or chargebacks.

Retailers are seeing a boost in their revenue by using the service, the CEO stated, which in some cases has accounted for 10 to 30% of sales volume, according to Molnar.