Buy now pay later usage drops off during COVID-19

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

Lending Type June 2020 December 2019 Change (% points)
Credit cards 46% 46% --
Buy now, pay later 13% 16% -3
Lay-by at retail stores 5% 8% -3
Unsecured personal loans 4% 4% --
Pay day loans 1% 2% -1
None of these 40% 38% +2

Source: ME Bank.

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Learn more about credit cards

How do credit cards work?

Think of credit cards as a short-term loan where you use the bank’s money to buy something up front and then pay for it later. Unlike a debit card which uses your own money to pay, a credit card essentially borrows the bank’s money to fund the purchase. When you apply for a credit card, the bank assesses your income and assigns you a credit limit based on what you can afford to pay back. At the end of each billing cycle, which is usually monthly, the bank will send you a statement showing the minimum amount you have to pay back, including any interest payable on the balance.

What is a credit card?

A credit card is a payment method which lets you pay for goods and services without using your own money. It’s essentially a short-term loan which lets you borrow the bank’s money to pay for things which you can pay back – potentially with interest – at a later date. Credit cards can also be used to withdraw money from an ATM, which is known as a cash advance. Because you’re borrowing money from a bank, credit cards charge you interest on the money you use (unless you repay the entire debt during the interest-free period). When you apply for a credit card, the bank gives you a credit limit which sets the maximum amount you can borrow using your card. Credit cards are one of the most popular methods of payments and can be a convenient way of paying for goods and services in store, online and all around the globe.

How do you use a credit card?

Credit cards are a quick and convenient way to pay for items in store, online or over the phone. You can use a credit card as a cashless way to pay for goods or services, both locally and overseas. You can also use a credit card to make a cash advance, which gives you the flexibility to withdraw cash from your credit card account. Because a credit card uses the bank’s funds instead of your own, you will be charged interest on the money you spend – unless you pay off the entire debt within the interest-free period. If you pay the minimum monthly repayment, you will be charged interest. There are many different credit card options on the market, all offering different interest rates and reward options.

How do you use credit cards?

A credit card can be an easy way to make purchases online, in person or over the phone. When used properly, a credit card can even help you manage your cash flow. But before applying for a credit card, it’s good to know how they work. A credit card is essentially a personal line of credit which lets you buy things and pay for them later. As a card holder, you’ll be given a credit limit and (potentially) charged interest on the money the bank lends you. At the end of each billing period, the bank will send you a statement which shows your outstanding balance and the minimum amount you need to pay back. If you don’t pay back the full balance amount, the bank will begin charging you interest.

How to pay a credit card

There are a few ways to pay a credit card bill. These include:

  • BPAY - allows you to safely make credit card payments online.
  • Direct debits - set up an automatic payment from your bank account to pay your credit card bill each month. You can choose how much you want to pay of your credit card bill when you set up the auto payments.
  • In a branch.
  • Via your credit card provider's app.

How do I apply for a credit card online?

Monthly repayment

This is how much you can afford to pay on a monthly basis off your credit card. You can enter any amount you wish; but to make the balance transfer worthwhile the default is $200.

Increase your credit card limit with Westpac

A credit card can be a useful tool to access extra cash when you need it. Sometimes you may wish to increase your credit card limit for greater financial flexibility. For example, to realize your immediate goals faster, such as planning for an international holiday or making a big purchase.

You can apply to increase your credit limit at any time, and most credit card providers have made it really easy to do so. You can use your online banking portal, the credit card provider’s mobile app, or even the telephone. 

Applying online to increase your credit limit with Westpac is the easiest option if you’ve already activated Westpac Live Online Banking. All you need to do is fill in the required information and then hit ‘submit’ to apply for an increase in your credit card limit.

Most banks will ask for details of your financial situation at the time of applying for a credit increase. This is done to ensure your new limit meets the lender’s criteria. 

You can apply for increasing your credit limit in any of the following ways:

  1. Visiting your nearest Westpac branch
  2. Calling Westpac on 1300 651 089
  3. Logging in on Westpac Live Online Banking

How does ANZ increase my credit card limit?

If you’re the primary cardholder on an ANZ credit card, you can increase your credit limit by logging into your credit card account and choosing the “Increase your credit limit” option. You can also submit an ANZ credit card limit increase application form by visiting any ANZ branch or by mail or fax. When completing the form, it's important to remember to specify how much you want the limit increased. You can estimate this by first calculating the amount of credit card debt you can afford to repay based on your income and expenses, and then declaring that in your application. 

Irrespective of whether you’re completing your ANZ credit card limit increase application online or in print, you’ll need to provide updated employment information, income, and expenses, which the company will have to verify. You'll also need to authorise ANZ’s access to your credit history, as your current credit score and recent credit history tell the company about your financial responsibility, and whether or not you'll be able to repay the additional debt you’re applying for. 

In some cases, ANZ may ask you for additional information, or the agent processing the application may reach out to you after your application is received. After verifying your credit score as well as your personal and financial information, however, ANZ may approve a credit card limit increase proportionate to your repaying ability, though it may not be the same as the increase you requested.

Current Annual Fees

These are the current annual fees on your existing credit card.

How to increase the NAB credit card limit?

If you use your NAB credit card regularly, you could consider requesting a higher credit limit. The good news is that it's fairly easy to do so using either the NAB app or NAB internet banking. 

NAB app: 

Step 1: Download the latest version of the NAB app.

Step 2: Select the ‘My Cards’ menu. 

Step 3: Select the card you want to increase the credit limit for. 

Step 4: Select ‘Usage Controls’ and then click on ‘Change Credit Limit’.

NAB internet banking: 

Step 1: Log into your account. 

Step 2: Choose the ‘My Cards’ menu. 

Step 3: Choose the card for which you want to increase the limit. 

Step 4: Choose ‘Change My Credit Card Limit’.  

If you don’t have the NAB app or cannot access NAB internet banking, you can even visit your local branch or call their contact center. 

Once you’ve applied to increase your NAB credit card limit, you’re likely to be asked for your

  • current employment details  
  • total income, before and after-tax deductions  
  • assets, liabilities, and expenses information

NAB will then assess this information to determine if your current financial situation suits the increased credit limit request, and your application will either be accepted or denied.

However, this process will only work if you’re attempting to increase your personal NAB credit card limit. For a business credit card, you can contact the NAB Corporate & Business Servicing team or speak to your NAB relationship manager. 

How easy is it to get a credit card?

For most Australians, there are no great barriers to applying for and getting approved for a credit card. Here are some points that a lender will consider when assessing your credit card application.

Credit score: A bad credit score is not the be all and end all of your application, but it may stop you being approved for a higher credit limit. If your credit score is less than perfect, apply for the credit limit that you need, rather than the one you want.

Annual income: Most credit cards have minimum annual income requirements. Make sure you’re applying for a card where you meet the minimum.

Age & residency: You need to be at least 18 years old to apply for a credit card in Australia, and most require that you are an Australian citizen or permanent resident. However, there are some credit cards available to temporary residents.

How to pay a credit card from another bank

Paying or transferring debt from one lender to the other is called a balance transfer. This involves transferring part or all of the debt from a credit card with one lender to a credit card with another. As part of the process, your new lender will pay out the old lender, so that you now owe the same amount of money but to a new institution.

Many credit card providers offer an interest-free period on balance transfers to help new applicants better handle their debt. During this period, cardholders are not required to pay interest on the debt they brought over from the other card. This can be a great opportunity for consumers to pay off credit card debt with no interest. There are often fees associated with balance transfers; normally, these are a percentage of the amount transferred.

So make sure you read the terms and conditions of the card before transferring any debt across.

How can I increase my Bankwest credit card limit?

When you apply for a Bankwest credit card, you get assigned a pre-set credit limit, which will end up being the most that you can spend on your credit card before having to pay it off. Your credit limit is chosen for you and your current financial situation, and you should remember not to overspend, irrespective of the limit, in order to avoid racking up a massive bill.

However, banks and lenders understand that your needs will change, and have made it possible for you to increase your credit card limit, allowing you to get extra cash when you need it most. Moreover, with a higher spending limit, you may be able to get access to certain perks and benefits with your Bankwest credit card.

To increase your Bankwest credit card limit, you can visit any of the bank’s branches or call 13 17 19 and follow the steps outlined.