Booming buy now, pay later causing money troubles for 1 in 3 users

Alex Ritchie-08/09/2020- 6 min read

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.

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Alex Ritchie

Personal Finance Writer

Alex is a personal finance writer and PR professional at RateCity, and has been writing about finance for over three years. She is passionate about closing the gender pay and superannuation gap, and aims to help young Aussies to overcome their financial apathy and better manage their finances. Alex has been published in numerous print and online outlets, including Money Magazine, Lifehacker Australia, and Business Insider.

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