One in six Australians are worse off using buy now, pay later schemes

Buy now, pay later schemes like Afterpay and Zippay have never been more popular with Australian shoppers, but one in six users are ending up in financial heartache, it’s been revealed.

One in six Australians signing up to buy now, pay later schemes are ending up in financial heartache by spending more money than they otherwise would, new findings have revealed.

The Australian Securities and Investments Commission has today released a report on buy now, pay later schemes including Afterpay and Zippay.

It found the number of consumers using these schemes has soared five-fold.

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The data showed users of these schemes climbed from 400,000 in the 2015-16 financial year to 2 million in the 2017-18 financial year.

And younger Aussies were the heaviest users — 60 per cent of buy now, pay later customers were aged between 18 to 34.

And at the end of June there was a whopping $903 million in outstanding buy now, pay later balances yet to be paid back.

One in six Australians are being left worse off after using buy now, pay later schemes. Picture: iStock

ASIC’s commissioner Danielle Press said the schemes had “potential risks for consumers” and said it was an ongoing focus of the corporate regulator.

“We found that buy now, pay later arrangements can cause some consumers to become financially overcomitted and liable to paying late fees,” she said.

“One area we will be targeting is where consumers are paying more than they need to for using a buy now, pay later arrangement.”

The report found many consumers believe these schemes allowed them to buy more expensive items than they would otherwise buy.

The schemes allow the customers to sign up, pay no deposit or a minimal amount and gradually pay off the items in instalments.

They are not charged interest but are hit with fees if they fail to meet strict payment criteria.

Some retailers offer fixed term contracts of up to 56 days for goods up to $2000, while others offer credit up to $30,000.

A Senate inquiry will be held in 2019 focusing on these schemes.

Afterpay’s customer base has soared to 2.2 million, and the average customer’s spend climbed from $700 in the 2016-17 financial year to $1100 in this financial year.

Rival scheme Zippay has 850,000 customers who can make purchases up to $1000.

AFTERPAY

— No credit checks.

— Payments to be made in four equal fortnightly instalments.

— For new customers the first instalment of 25 per cent is charged at the time of purchase.

— $10 for an initial late payment.

— A further $7 fee if the payment is not made with seven days.

— Late fees capped at a maximum of $10 for purchases under $40 or maximum of $68 for larger purchases.

ZIPPAY

— Credit, ID and banking checks.

— Up to 60 days to pay in full without incurring costs.

— $40 minimum monthly repayments.

— $6 monthly fee if monthly balance not paid off in full.

— If the minimum repayment amount of $40 is not paid by 21 days after the due date a $5 late fee will be charged.

Originally published as One in six Australians are worse off using buy now, pay later schemes