28 April 2021

Warren Day, ASIC’s Victorian Regional Commissioner and Chief Operating Officer, recently joined ABC Melbourne Drive host, Raf Epstein, to discuss the growing use of Buy Now Pay Later (BNPL) arrangements and offered some tips to listeners to make the most of these services.

ASIC research showed the number of BNPL transactions increased from 16.8 million in the 2017-18 financial year to 32.0 million in the financial year 2018-19, representing an increase of 90%.

During COVID-19, there was continued growth (from June 2019 to June 2020), as transactions increased by 43%, the number of users grew by 25% and the total value of transactions grew by 43%.

But while BNPL can be convenient, ASIC’s research also showed that some users were finding it difficult to juggle repayments with other financial commitments.

‘Buy now, pay arrangements have been great for many Australians, allowing them to buy and receive goods and services immediately from a merchant and repay the BNPL provider over time.

‘Unlike a traditional loan or credit card, consumers don’t pay interest on purchases. Instead, they may be charged fees, such as account keeping fees, establishment fees and missed payment fees.

‘While BNPL arrangements are working for many, ASIC is aware some consumers are incurring missed payment fees and report being financially stressed. In fact, BNPL users were more likely than the general population to experience financial stress in the last 12 months (21% versus 12%) and more than twice as likely as credit card holders (9%).

‘Our most recent report found that 1 in 5 BNPL users said they had cut back on or went without basic essentials like food to make repayments on time, and 1 in 6 took out an additional loan simply to make their BNPL repayments on time.

‘We are also aware that the availability of BNPL services, compared to more traditional credit options, could create some unhealthy spending behaviours, with consumers spending more than they usually would or making more spontaneous purchases’, Mr Day said.

Moneysmart offers some tips to make the most of BNPL services. These include:

• stick to a limit and aim to have only one buy now pay later account at a time;
• budget for bills, loan payments and buy now pay later payments; and
• consider linking your buy now pay later account to your debit card instead of your credit card. That way you're using your own money and avoid credit card interest.

‘For many, BNPL has offered a great way to access goods and services and smooth payments, especially for bigger purchases. But whenever you are using money that’s not your own, it can be easy to overspend. While most BNPL providers have not historically run credit checks, if you are frequently missing payments or incurring late payments, this may affect your ability to borrow money in the future.

‘If you do find yourself in trouble, Mr Day says most buy now pay later providers have dedicated complaints and hardship services.

‘Contact your provider if you have a complaint or if you're having trouble making repayments – don’t put it off. If you're struggling to make repayments, you can also talk to a financial counsellor. They offer a free and confidential service to help you get your finances back on track’, Mr Day said.

And for those who find BNPL arrangements a great product which helps them manage their budget Mr Day says, ‘Enjoy your purchase – but remember it has to be paid for in the end!’.