By Jessica Yun
Consumers with tight household budgets are using buy now, pay later services and redeeming loyalty rewards points to pay for everyday household items, a trend financial counsellors say risks pushing them towards spiralling debt.
PayPal, Flybuys and Afterpay are seeing growing numbers paying for everyday expenses with financial products and rewards programs as households battle stubbornly high inflation, elevated interest rates and other cost-of-living pressures.
“[Buy now, pay later] goes well with nuisance payments – the things you have to pay out of obligation rather than enjoyment,” PayPal Australia managing director Simon Banks told this masthead.
Australians are using financial products as budgeting tools.Credit: iStock
While PayPal is broadly accepted across national retail outlets such as clothing and electronics stores, Banks said most Australian insurers, telco companies and government bodies now offer PayPal as a payment method, with grocery retail, food delivery, insurance and ticketing some of the biggest growth areas for the global wallet that offers its own buy now, pay later product.
“I’ve got this $500 car rego, I can split that into four payments. It just helps across one or two pay cycles,” Banks said. “It’s one of many choices that the consumer should have.”
A survey from Compare Club found nearly a third (30.95 per cent) of respondents were using buy now, pay later to cover essentials such as groceries and fuel. Afterpay is also seeing a similar theme as consumers become more deliberate about their purchases.
“You are certainly seeing that manifest in cost-of-living pressures on the demographic. We’re also seeing the advent of our customers just wanting to use Afterpay for their everyday purchases,” said Afterpay country manager Katrina Konstas.
Meanwhile, Flybuys has observed a 30 per cent rise in points redeemed by members and a 150 per cent spike in the people redeeming points for the first time.
“[Members] use it to take dollars off their shop, make their grocery spend go a bit further, to fund those family holidays. We see members using it to gift for people to support the renovation of their house,” said Flybuys chief customer officer Deirdre Boyle.
Flybuys is picking up new members and seeing them redeem points for the first time.
The rewards program has been attracting new customers: Coles reported a 5.3 per cent growth in active members in the 2024 financial year. Chief executive Leah Weckert has previously spoken about a growing proportion of members who are saving up points to use for a major shop for Christmas or end-of-year festivities.
“Most savvy shoppers get into the app, and they see all the offers that are available to them, and they plan their shops around where they’re going to get the most value from that shop that helps bank those points for something that’s really important to them,” Boyle said.
But despite the increase in engagement with these platforms as budgeting tools, financial counsellors and the National Debt Helpline are hearing more cases of people presenting with buy now, pay later-related debt and are calling for tighter regulation in the space.
“More and more people are using it as emergency relief, for essentials like food and petrol and other essential expenses,” said Financial Counselling Australia counsellor and consumer advocate Deb Shroot.
“If someone can’t pay for those essentials today, how are they going to pay for those essentials in two weeks? Plus on top of that, the repayment of the previous amounts that they did borrow for the essentials before?”
Assistant Treasurer Stephen Jones tabled legislation to parliament earlier this year that would require buy now, pay later companies to conduct basic credit checks on customers by bringing the operators under the Credit Act, but the draft laws have seen little movement since they were introduced. Jones’ office was contacted for comment.
“Because it’s unregulated, people can take out more than one [buy now, pay later] product,” said Shroot, who said this practice was leading some into a “debt spiral”. In some instances, financial counsellors are hearing of people going without medication or skipping specialist appointments.
“You’re borrowing money to pay for money, and then eventually you can’t,” she said. “It’s incredibly dangerous. More people [are] becoming more desperate to having their essentials needs met.”
National Debt Helpline: 1800 007 007
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