Buy now pay later usage drops off during COVID-19

Fewer Australians are using buy now pay later services during the pandemic, while credit cards remain to be the most preferred non-cash payment method, new research showed. 

Nearly one in eight shoppers said they used buy now pay later platforms in the six months to June 2020, a ME Bank survey of 1,500 indicated. This is a decline from about one in six consumers in the six months prior.

Most people opted for the more traditional form of credit during the pandemic, as credit card usage remained stable in the past year. Forty-six per cent of Australians used their plastic to make payment in the first half of 2020, the same level as the previous half year.

This is despite a report from Power Retail suggesting earlier this year that buy now pay later consumers had surged by 12 percentage points to 39 per cent in 2019, while credit card users had dipped by six percentage points to 29 per cent. 

The proportion of people buying with lay-by at retail stores dropped off to 5 per cent from 8 per cent, while the level of unsecured personal loans accessed remained unchanged at 4 per cent. Usage of pay day loans halved, with only 1 per cent of those surveyed relying on short-term credit for funds.

Australians tread carefully with credit

The findings come as data from the Reserve Bank of Australia, released today, showed the number of personal credit card accounts has fallen by 9 per cent, or about 1.3 million.

ME general manager of personal banking, Claudio Mazzarella, said Australians are becoming more cautious with how they access credit, thanks to COVID-19 and the economic downturn.

“It doesn’t matter how innovative the lending method is, most Australians are wary of getting into more unsecured debt in the midst of a global and domestic economic crisis,” he said.

“Buy now pay later certainly hasn’t replaced the credit card yet. Credit card usage is holding steady while buy now pay later is dropping.”

Mr Mazzarella said Australians are taking a wait-and-see approach to borrowing during the coronavirus-induced recession.

“Most Australians are financially savvy. They know spending is spending, and debt is debt. Many households have taken a severe financial hit to incomes and been forced to cut back on spending, or they’re prudently waiting to see how this pandemic plays out before borrowing more.”

He noted that shoppers who use buy now pay later tend to be typically “younger and less financially comfortable”.

“They may be wary of credit cards in general or unable to qualify for a credit card,” he said.

According to ME research, the average buy now pay later user is probably:

• Female.
• Gen Z (18-24) or Gen Y (25-34).
  A single parent (if they have children).
• Holding less than $1,000 in savings.
• A student, part-time employed, home duties or unemployed.
• Receiving some form of government assistance.
• Renting.
• If they own or are paying off a home, the property is valued at $300,000 or less.

Should you use a credit card or buy now pay later?

Different consumers will prefer to use different payment methods, depending on your spending level, lifestyle and intentions. If you’re tossing up between your plastic or newer buy now pay later services, one of the first things to compare is the cost of using either. For credit cards, this would be the purchase or interest rate and any annual fees, and for buy now pay later, this could be potential late payment fees or other charges. Some credit cards can charge an eye-watering 20 per cent purchase rate, so it’s best to find out the details before committing.

Something else to weigh up is a credit card’s interest-free period, versus a buy now pay later platform’s instalment period. While each provider will have a different policy, you may expect to have more time to pay off your purchases with a longer interest-free period or instalment period.

For a more detailed breakdown, check out RateCity’s comparison of credit cards and buy now pay later platforms. 

How Aussies accessed credit in the past six months

Source: ME Bank.

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