Shoppers using buy now pay later risk “inflated prices”, regulator warns

Shoppers using buy now pay later risk “inflated prices”, regulator warns

Shoppers using services including AfterPay, Zip Pay and Certegy risk paying inflated prices, the financial regulator has warned, as merchants could try to recoup some of the money they are charged by the buy now pay later providers.

The Australian Securities and Investment Commission (ASIC) published its long awaited follow up report on the buy now pay later industry. In addition to finding one-in-five shoppers are being charged late fees, it warned shoppers using them risk inflated prices.

“There is … a risk that consumers may be paying inflated prices for some goods and services when using a buy now pay later arrangement,” ASIC said.

The report -- based on data provided by six leading buy now pay later providers, four banks and a consumer spending survey -- found providers did try to curb the risk of surcharging, and revealed a regulator’s preemptive campaign involving thousands of letters.

Why surcharges could be a thing

The buy now pay later category -- where people can walk out of a store with an item and repay it over instalments -- is growing at a quick rate.

Based on the collective data analysed by ASIC, from providers AfterPay, BrightePay, Humm, Openpay, Payright and Zip Pay, revenue jumped by 50 per cent in a financial year, from $266 million in 2018 to $398 million in 2019.

Late fees are a widely known revenue driver for the category, and although they grew by 38 per cent to $43 million, they aren’t the main source of income.

Most of their revenue comes from charging retailers fees for access to their customer base.

Take Afterpay, for instance, which accounted for 73 per cent of the $5.6 billion in transactions in the last financial year. The company generates just 20 per cent of its income from late fees, while merchant fees make up 80 per cent.

The percentage of merchant fees versus late fees in FY19. Source: ASIC

Provider Afterpay Brighte Certegy Openpay Payright ZipMoney
Merchant fees







Missed payment fees







Other consumer fees







Policing surcharging is difficult

Many buy now pay later providers prohibit sellers from slapping surcharges on products, but ASIC warns difficulties in policing could result in it happening anyway.

“Providers generally contractually prohibit merchants from increasing the cost of goods and services to the individual consumer where their buy now pay later arrangement is used,” ASIC said.

“Despite the contractual prohibitions in place, it is still possible for surcharging to occur, and for consumers to be charged more when using a buy now pay later arrangement.”

Identifying surgarging is difficult for a number of reasons, ASIC said. These include claims a product was unique; that the price was raised following a negotiation; offering a ‘false’ discount to cash customers, and; only offering a buy now pay later price.

A preemptive regulatory blitz

The difficulties in policing surcharging led to two regulators sending a warning shot to merchants in the form of a preemptive campaign.

ASIC and the Australian Competition and Consumer Commission (ACCC) wrote to over 5,000 merchants who have partnered with buy now pay later providers, reminding them of their obligations under the law.

This includes that it is illegal to mislead or deceive customers on pricing under Australian Consumer Law, as well as a reminder of their obligations under the ASIC Act.

But the 5000 letters represent a fraction of the partners who accept buy now pay later services. According to ASIC’s report, about 56,000 merchant agreements were in place in 2019.

“The merchants were chosen because ASIC believed their industries were more likely than others to engage in surcharging,” the regulator said.

One in five charged late fees

ASIC’s report also revealed 21 per cent of people using buy now pay later services were charged a late fee in 2019.

And that 45 per cent of people were charged multiple late fees, amounting to 1.1 million transactions.

“Many BNPL platforms automatically deduct repayments from customers’ accounts, which means they can’t see when they go into overdraft or can’t pay their bills,” Sally Tindall said, research director at RateCity.

“It’s time for the industry to accept some people are getting into strife and put forward policies that will address these issues.”

The people struggling often sacrificed to make sure they weren’t charged fees.

Of the 1655 people surveyed by ASIC, about 20 per cent said they cut back or went without meals and other essentials, while 15 per cent said they took out another loan.

Half of these people were aged between 18 to 29, the report said.

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