BNPL dragging a third of Australian users into ‘financial trouble’: RateCity

More than half of buy now, pay later users surveyed said these platforms caused them to impulse spend.

The survey found 9 per cent of people went into overdraft on their bank account because of their buy now, pay later payments. Picture: AAP

Nearly a third of Australians using buy now, pay later providers are finding themselves in financial trouble as a result, according to new research released by comparison website RateCity.

About 32 per cent of Australians have used a buy now, pay later service to make a purchase, and about 28 per cent of those have ended up in financial trouble.

More than half of the 1009 consumers surveyed by RateCity said they were more likely to impulse buy when using a buy now, pay later service, and 16 per cent of people said they had overstretched their budget as a result, leaving them struggling to pay for other expenses.

Nine per cent of people went into overdraft on their bank account because of their buy now, pay later payments.

“Every day, thousands of Australians are signing up to these services, all wanting to purchase something now, but delay the pain of actually paying for it,” RateCity research director Sally Tindall said.

“It’s concerning more than half of buy now, pay later users surveyed said these platforms caused them to impulse spend.

Thirty-seven per cent of women have used a buy now, pay later service – such as Afterpay or Zip Co – compared with 27 per cent of men.

“While buy now, pay later has become the school of hard knocks for some Australians, services such as Afterpay put customers on a much shorter leash than a standard credit card, if they stick to just one platform,” Ms Tindall said.

“People that have a number of purchases on the go across several platforms risk losing track of their repayments. It can easily translate into multiple late fines and, in some cases, overdrawn fees from your bank.

“If you’re applying for a home loan be aware, heavy use of buy now, pay later services could be a red flag and potentially reduce the amount the bank will let you borrow.”

Afterpay currently dominates the local buy now, pay later market, with around 3.3 million active customers in Australia and New Zealand, compared to Zip Co’s 2.1 million and Latitude Pay’s 425,000.

A spokesman for Zip Co disputed the research, saying it did not match its own numbers.

“RateCity’s research does not reflect Zip’s experience where, despite COVID-19, only 0.002 per cent of Zip’s customers are in hardship, 840 from 2.1 million,” the spokesman told The Australian.

“What’s more, a recent Senate interim report found that even at the peak of COVID consumer financial hardship requests in March and April 2020, across the BNPL industry was less than 1 per cent.

“More broadly, Zip has always done credit checks on all customers. If a Zip customer misses a minimum payment their account is locked, so they cannot get into a debt spiral, unlike a credit card.”

Afterpay responded by referring to its annual results released last month, which said that the company does not allow customers to “revolve” in debt.

RateCity’s findings come ahead of ASIC’s review into the sector which is due out later this year.

Last week, the Select Committee on Financial Technology and Regulatory Technology handed down its interim report, recommending the industry be allowed to self-regulate.

The growing buy now, pay later market is dominated by Afterpay, which grew its active customer base to 9.9 million at June 30, from 4.6 million the prior year. The company has expanded into the US and the UK, and is preparing to launch in Canada, Europe and Asia.