Is Buy Now Pay Later creating a new pool of debt?

  • By Kate Weber

Buy Now Pay Later continues to grow amongst Australian consumers with questions raised if the system is creating a new pool of debt or overtaking other mainstream debt instruments.

Research from RFi Group shows BNPL debt is not credit related as the majority of the BNPL customer base are millennials with many not eligible for credit cards.

Yet, whilst consumers are using debit cards as the principal funding mechanisms it could lead to a creation of a new pool of non-traditional ‘debt’.

This follows an ASIC review released in July 2018 which found more than one in six consumers struggling with credit card debt.

More than 80 per cent of customers have a transaction account or debit card funding their purchases, rather than a credit card.

Recent statistics from ASIC also show that over the last two years BNPL service, Afterpay, has gathered more than 2 million Australian customers and had more than $900 million in outstanding balances at the end of June 2018.

In fact, on Friday the business announced that sales growth of 140 per cent in the first half of 2018-19 with the US business already processing $260 million in sales transaction the in the US.

Greater consumer take-up of such services has led ASIC to begin monitoring BNPL arrangements after another review revealed the structure is influencing the spending habits of consumers, leading them down a path of debt.

BNPL is not currently not regulated under the National Credit Act and as a result, providers are not required to be licensed or to comply with the responsible lending laws that prohibit a lender from providing credit that would be 'unsuitable' for the consumer.

“I’ll Klarna it”

Power Retail’s national survey by of over 5,000 retailers discovered a strong embrace of BNPL with 1.8 million registered users and a growth rate of over 120 per cent per annum.

The survey also found BNPL soon becomes ingrained in regular online shopping behaviour, with 67 per cent of BNPL customers still using the service 12 months on from their initial trial.

RFi Group research also found a third of consumers aged below 35 used Afterpay by November 2018 despite the service’s lack of advertising, displaying the strong consumer demand.

BNPL is also a strong global trend as RFi Group research shows that almost one in three US consumers under the age of 44 years would strongly consider an alternative lender.

A recent survey of consumers in the UK by RFi Group shows that more than one in four consumers has now used a BNPL service, making it perhaps one of the most developed markets globally.

Furthermore, more than one in three UK consumers can see themselves using such a service in the future.

RFi’s Global Digital Banking survey shows that consumers are more likely to trust an alternative provider for their payments 30 per cent compared with 27 per cent for saving and 23 per cent for borrowing.

In Sweden, the BNPL service Klarna has even proven so popular consumers now use the phrase “I’ll Klarna it”.