I am trying to understand how buy now pay later businesses account for revenue. I have looked up the EIR method and cant see where it talks about using the average period from intial payment to final installment (please refer bold text below).
Secondly, when buy now pay later recognise revenue, do they do that over the expected payback period, which would say 4 weeks for like Afterpay or over the period the customer pay, so if customer pays back in 1 year, the revenue would be recognised over a year cos the funding was settled in a year and not 4 weeks as expected.
Merchant fees Merchant fees are derived from the difference between the consumer’s underlying order value processed by the Laybuy platform and the amount paid to the merchant by the Group. The Group pays merchants upfront the net amount of the previous day’s orders less the merchant transaction fee, which consists of fixed and variable rates set per individual merchant agreements. The Group then assumes all non-repayment risk from the consumer. There are no interest or fees charged by the Group to consumers, other than late fees which are incurred as described below. Merchant fees are recognised in the consolidated statement of comprehensive income using the Effective Interest Rate (EIR) method in accordance with IFRS 9 Financial Instruments, accreting the merchant fees over the average period from initial payment to the merchant by the Group to the final instalment paid by the consumer to the Group. The Group defers merchant fees over the average time it takes for the collection of the receivable to occur, with the current average weighted duration to recoup end-consumer payments being approximately 34 days