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Booming buy now, pay later causing money troubles for 1 in 3 users
The Federal Government of Australia has announced its decision to regulate the BNPL industry under the National Consumer Credit Protection Act. As a result, BNPL providers in Australia will soon be required to comply with Responsible Lending Obligations and hold Australian Credit Licences. The new regulations may also impact the way BNPL services operate by introducing credit checks for individuals signing up for these services in the future.
Almost a third of people who use buy now, pay later services (BNPL) are finding themselves in financial trouble, according to RateCity research.
RateCity has surveyed 1009 Australians to find out what impact these services are having on their personal finances, particularly in light of COVID-19 and ahead of the next ASIC review, due out later this year.
RateCity BNPL survey findings:
Who’s using BNPL?
- 1 in 3 people have used BNPL (32%).
- More women have used BNPL than men (37% of women compared to 27% of men).
- Half of 18 to 34-year-olds have used Afterpay, Zip Pay or similar.
BNPL can lead to money troubles:
Almost a third of people (28%) who have used BNPL found themselves in money troubles as a result. This includes:
- 16% of people overstretched the budget leaving them struggling to pay for other expenses.
- 14% have paid a late fee.
- 9% (almost 1 in 10) went into overdraft on their bank account because of BNPL payments.
BNPL causing people to impulse buy:
- More than half of those surveyed (53%) said they are more likely to impulse buy using BNPL.
- Almost 7 out of 10 young Australians said it makes them more likely to impulse buy (68% of 18 to 34-year-olds).
- Women are more likely to impulse buy using BNPL than men (women 57%, men 47%).
BNPL booming in Australia
The buy now, pay later market in Australia is booming, with a growing list of providers now available in Australia. Dominating the market is Afterpay, with 3.3 million active customers in Australia and NZ and Zip Co with 2.1 million in Australia. Latitude Pay has 425,000 customers in Australia and NZ.
RateCity research director, Sally Tindall, said: “Every day, thousands of Australians are signing up to these services, all wanting to purchase something now, but delay the pain of actually paying for it.
“Our research found 28 per cent of buy now, pay later users are getting themselves into money troubles, with some unable to pay their bills as a result,” she said.
“It’s concerning more than half of buy now, pay later users surveyed said these platforms caused them to impulse spend."
A spokesperson from Zip Co pointed out that the company’s own numbers do not align with RateCity’s findings.
“RateCity’s research does not reflect Zip’s experience where, despite COVID, only 0.002% of Zip’s customers are in hardship (840 from 2.1 million),” he said.
“Whats more, a recent Senate interim report found (recommendation 8.63) even at the peak of COVID consumer financial hardship requests in March and April 2020, across the BNPL industry was less than 1 per cent.
“More broadly, Zip has always done credit checks on all customers (each month about 1 out of 100 Zip customers is late each month compared with 1 in 6 for credit cards). If a Zip customer misses a minimum payment their account is locked, so they cannot get into a debt spiral, unlike a credit card.”
Ms Tindall said impulse shopping can put a sinkhole into the best laid savings plans.
“Hit pause before you pay, at least for 24 hours, and if you make a mistake, send your purchase back. There’s nothing worse than having a bad shopping decision hanging in your closet.
“While buy now, pay later has become the school of hard knocks for some Australians, services such as Afterpay put customers on a much shorter leash than a standard credit card, if they stick to just one platform.
“People that have a number of purchases on the go across several platforms risk losing track of their repayments. It can easily translate into multiple late fines and, in some cases, overdrawn fees from your bank.
“If you’re applying for a home loan be aware, heavy use of buy now, pay later services could be a red flag and potentially reduce the amount the bank will let you borrow,” she said.
Tips if using buy now, pay later
- Read the terms and conditions.
- Set yourself strict spending limits.
- Don’t impulse buy.
- If you get into trouble, pull the pin.
Key BNPL services available in Australia
| BNPL provider | What can you buy and where can you use it? | Payment schedule | Max value of purchases | Account fees | Late fees | Perform credit checks? |
| Afterpay | Use at affiliated retailers.
Primarily non-essential items. | 4 instalments over 6 wks | $2,000 | No interest or monthly fees. | $10 per late repayment and an additional $7 if you don’t pay in 7 days. Max fee 25% or $68 whichever is lower. | No |
| Bundll | Anywhere Mastercard is accepted.
Can be used for essential and non-essential items | Repay within 2 weeks.
Extend between 2 – 12 wks for a fee. | $1,000 | No fees for basic bundle.
A 2-week extension costs $5. A 12 wk plan costs 5% of amount. | $10 late payment fee then account is suspended | No credit check for standard bundll.
Credit check for ‘Superbundll’. |
| Deferit | Used only to pay bills (primarily utility bills) | 4 fortnightly instalments | $2,000 limit per bill | $5.99 /mth when you have bills owing.
Card payments include 1.5% + 20c fee. | None. | Yes |
| humm (Little Things) | Use at affiliated retailers as well a majority of BPay billers.
Primarily non-essential items. | 5 or 10 fortnightly instalments | $2,000 | No fees if making 5 fortnightly instalments.
$8 mthly fee if making 10 fortnightly repayments. | $6 for each late payment | May check your credit rating, but this won't affect your score or leave a record on your file. |
| Klarna | Use in most stores via the Klarna app (excludes supermarkets). | Pay in 4 fortnightly instalments.
Can extend for 2 weeks for a fee. | $1,000 | Up to $7 fee to extend for 2 weeks (dependent on purchase price). | $3 - $15, depending on purchase price, per late payment. Max fee is $45. | Yes - visible on your credit report but will not impact your credit score |
| LatitudePay | Use at affiliated retailers.
Primarily non-essential items. | 10 weekly repayments. | $1,000 | None | $10 per late payment, capped at $10 for purchase under $50; and $50 for purchases over $50. | Yes |
| Laybuy | Use at affiliated retailers.
Primarily non-essential items. | 6 weekly repayments | Not stated | None | $10 per late payment and an extra $10 if you don’t pay in 7 days. Max $100 | Yes |
| OpenPay | Use at affiliated retailers.
Primarily non-essential items. | Payment plans of between 1 and 24 mths. | Not stated | Varies according to payment plan and merchant. | Up to $9.50 per late repayment and up to $19.50 if you don’t pay within 7 days | May do a credit check. |
| PayItLater | Use at affiliated retailers.
Primarily non-essential items. | 4 weekly repayments | $1000 | None | $10 per late repayment and an additional $5 if you don’t pay after a week. | Yes, but using its own tests and document verification services. |
| Splitit | Use at affiliated retailers.
Some retailers require a credit card | Not stated | Works on existing credit card limit. | None | None | No |
| Zip Pay | Anywhere | Flexible repayment schedule provided you pay a min $40 / mth | $1,500 | $6/mth if you have money owing. | A late fee of $5 applies after 21 days of not paying the minimum | Yes |
-Alison Cheung contributed to this story.
Disclaimer
This article is over two years old, last updated on September 9, 2020. While RateCity makes best efforts to update every important article regularly, the information in this piece may not be as relevant as it once was. Alternatively, please consider checking recent credit cards articles.
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