Buy Now, Suffer Later

 Written by: Duncan B. on 9 April 2021

Recently there has been a massive increase in the use of Buy Now Pay Later. BNPL allows a customer to make a purchase and pay for the goods or service over four equal instalments linked to their debit or credit card.

There are many companies offering BNPL. The main ones are Afterpay and Zip. Others include Klara (backed by the Commonwealth Bank), Latitude Pay, Humm and Open Pay.

The value of BNPL transactions grew by 55% in 2019-20, and tripled over the previous three financial years. In 2019 BNPL companies processed $10 billion worth of transactions in Australia and New Zealand.

BNPL differs from other means of payment because customers are not charged interest, unlike credit cards. Instead, customers incur late fees if they miss a payment. These fees vary from company to company. As well as late fees consumers can also be hit with credit establishment fees, monthly account keeping fees, payment processing fees and early exit fees. 

It is estimated that one in five customers have missed BNPL payments. Fee revenue paid to BNPL companies was $43 million in 2018-19, an increase of 38% on the previous year. There are reports of people getting into financial difficulties with BNPL, especially those who make multiple purchases using several different companies at the same time. They then find themselves unable to meet the instalment payments when the time comes. They are also incurring bank charges for dishonoured direct debits and credit card fees.  Many are young people as almost a quarter of people aged 25-34 use BNPL.

BNPL companies also charge merchants fees of 4 to 6% for providing the service. Many small businesses are finding it hard to make a profit on sales, and the fees they pay to BNPL companies are another cost burden. However they find that they have to offer BNPL to match their competitors and capture extra business. Some customers who used to pay for their goods outright are now using BNPL to pay for goods, to the detriment of the merchant.

Because BNPL companies are not actually providing credit, they are not subject to the same regulation applying to credit providers. To head off possible increased regulation, the BNPL industry has introduced a Code of Conduct. This provides for an assessment of a customer’s ability to repay debt, but only for purchases of more than $2000 for existing customers and $3000 for new customers.

Missed payments to BNPL companies are also generally not included on consumer credit reports. Lenders would not be able to take this into account when deciding to provide credit. This could lead to people getting into further trouble over credit.

I am old enough to remember the days when consumer credit was almost non-existent. Hire-purchase and lay-by were about the only options. In 1974, Bankcards were introduced as the first mass consumer credit system. 

The availability of easy credit has allowed the capitalist system to sell millions more commodities, and for banks and other financial organisations to make enormous profits from fees and interest charged for supplying credit. BNPL is the next stage in this process.