Afterpay will introduce a spending cap feature as the cost-of-living crisis bites

One of the world’s largest buy now, pay later services says it will introduce a self-regulated spending limit for customers to help prevent them over extending on impulse purchases.

Gen Z and Gen Y are the most likely group to use buy now, pay later services.

Buy now, pay later giant Afterpay is introducing a self-regulated spending cap as the cost-of-living crisis puts increasing pressure on consumers – especially younger ones – who are finding its harder to pay their bills.

Afterpay will introduce the in-app feature to allow customers to set their own spending cap, which is below their approved spending limit.

The feature, which can be adjusted at any time based on the customer’s discretion, will be launched in Australia later this year, with a follow-on to other markets, including New Zealand and Britain.

Afterpay, founded in 2014 in Australia by entrepreneur Nick Molner and his next-door neighbour, investor Anthony Eisen, declined to reveal any further details at this stage.

However, according to the Afterpay website, current spending limits start at $600 and only increase with proven on-time payment behaviour. The site says 98 per cent of Afterpay orders don’t incur a late fee.

The spending cap feature comes as consumer research company Finder revealed that 29 per cent of BNPL users – or 2.4 million people – have missed another bill in order to make their repayments in the past 12 months.

A recent Afterpay ad campaign.

Finder head of consumer research Graham Cooke said BNPL services had surged in popularity among young Australians, as they seemed to offer a risk-free alternative to credit cards.

“However, the market has matured, and many consumers have returned to traditional credit cards, drawn to their broader payment flexibility and rewards programs,” he said.

“While it offers convenience, it’s not risk-free. Overspending, late fees, and potential debt accumulation are risks.”

Afterpay’s website says it has enforced an estimated spend limit for users based on payment history, including how many late repayments there have been.

Finder’s Consumer Sentiment Tracker found 41 per cent of Australians have used a BNPL service in the past six months, with Gen Z and Gen Y (57 per cent) the most likely to use the services.

To meet repayment deadlines, 13 per cent of Australians have overlooked an energy bill, while 12 per cent have gone as far as skipping a meal.

However, Finder research found that the average BNPL debt has fallen from its peak of $1776 in January 2022 to $964 in September.

Mr Cooke said responsible use of BNPL services requires careful budgeting.

“Users should avoid relying on it for everyday expenses,” he said.

Finder’s 2024 Buy Now Pay Later Customer Satisfaction Awards asked hundreds of Australians about the BNPL services they used. Afterpay took the top spot for Most Loved and Legendary Service, while PayPal was crowned Most Trusted.

Originally published as Afterpay will introduce a spending cap feature as the cost-of-living crisis bites