It’s hard to shop in-store or online without seeing a logo for a buy now, pay later service, like Afterpay or Zip, and Aussies are converted.
- In the 2020-2021 financial year, Australians spent almost $12 billion on buy-it-now, pay-later services
- Buy now, pay later platforms reported 5.9 million active accounts
- The federal government wants to regulate the industry
Flirting with new credit providers has turned into a romance in its own right during the lengthy COVID-19 lockdowns as Australians more than doubled their spending to $11.9 billion last financial year from just $5.6 billion three years earlier.
According to research published exclusively on ABC’s 7.30 – which was carried out by RFI Global for the Australian Finance Industry Association – 38% of 1,746 respondents had used one of the buy now, pay later (BNPL) services, and platforms reported 5.9 million active accounts.
Services are essentially a digital hold, but you can take the item home immediately and pay off the debt in fixed installments.
Mother-of-three Mel Theobold from Shellharbour in New South Wales uses Zip and Afterpay to juggle her budget.
“I’ve used Zip in the past to buy a washing machine. After I pay, I use it for groceries, birthday presents, little things like that,” she said.
She didn’t have a job when she signed up and Afterpay offered her $500 with no credit check and Zip offered her another $500.
They quickly increased his limits to $3,000 and $2,000 respectively, giving him a combined total of $5,000 a month to spend.
“Which doesn’t make sense to me, because I don’t know how I can repay so much,” she said.
Ms Theobold never had any real problems with her debts, but many did.
The Australian Finance Industry Association report published at ABC 7.30 shows that 18% of buy now, pay later users missed a refund, compared to 17% of credit card holders.
And one in 14 said they had to cut back on essential purchases just to make their repayments.
Industry regulatory projects
When 7.30 signed up for Afterpay, the process took about two minutes, with no credit checks and instant access to $600 in credit.
This is precisely what the new federal Minister of Financial Services, Stephen Jones, wants to stop.
“I don’t want to argue about whether it’s credit or not, it clearly is,” he said at 7:30 a.m.
“And I don’t want to discuss whether there should be a minimum standard of consumer protection… background credit checks.”
The BNPL is not regulated in the same way as credit cards, but the minister says he will introduce legislation within a year, which will involve extensive consultation with the industry.
“Whatever you do in financial services, there are big voices with deep pockets,” he said.
Zip co-founder and COO Peter Gray is campaigning for less credit legislation.
“Simple regulations that adapt to our products… but it is very important that does not stifle competition [such as] highly compliant regulations that would be similar to a full-fledged national credit code,” he said.
“We are very keen to provide our services responsibly and only provide amounts or limits that customers can reasonably afford.”
Tech behemoth Apple has announced its entry into the BNPL space in the US later this year with Apple Pay Later, and could also play a role in the Australian market.
Mr Jones says if they do, he will make sure they don’t wipe out the competition.
“We’ll want to make sure that if Apple enters this space, we have a level playing field, in how their devices operate and how other apps and other platforms access their devices. “
Watch this story at 7:30 a.m. on ABC TV and ABC iview.