Undoubtedly, Buy Now Pay Later Services have changed the fintech and payments environment in Australia. A recent study by Roy Morgan found that till September 2019, over 1.95 million Australians have used at least 1 shop now pay later service, online or at stores, available in the country . A national regulator, the Australian Securities and Investments Commission (ASIC) reviewed 6 players in Australia offering BNPL service. Amongst many other findings, following are the key takeaways .
- 60% of shoppers are in the 18-34 age group
- 55% users spent more than they did before the era of BNPL
- 81% users agree that they are able to afford more expensive things through BNPL programs
- 1/3rd of users report not using or having any other credit facility
What could be analyzed from these numbers? That buy now, pay later is being adopted majorly by millennials – the consumer group born between 1981-1996. This is the consumer group that has only so much patience with rough interfaces and is cautious of credit cards. Another study found 1 in 3 Australians using BNPL programs. Millennials lead this study as well with about half of them having used a BNPL service and 90% being aware of BNPL .
For good, bad or worse, buy now pay later services are here to stay. If you want to understand what these companies are, how they work and how they are better than other credit facilities (if at all), you’ve come to the right place. Let us begin by understanding what BNPL services are.
What are buy now pay later services?
‘Buy Now, Pay Later’ is a type of payment option available at checkout of e-commerce websites and stores. It essentially indicates an interest-free credit platform that allows you to distribute the purchase cost over time instead of paying the entire amount upfront.
This service is exactly what its name suggests: You shop now and make payments in the form of periodical installments so you are not spending a huge amount of money at once. It is not just apparel that shoppers can buy using BNPL service, shoppers can buy anything and everything between flight tickets, contact lenses, a visit to the dentist and much more.
While credit cards and other traditional credit systems charge consumers interest in addition to the cost of the product, most buy now pay later companies charge the merchants a fee in one form (registration fee or fee per transaction) or the other, instead. This system helps companies close deals on consumers who love the product but can’t purchase it because of insufficient funds. It allows consumers to buy expensive products and services and pay them in installments.
How does a BNPL service work?
Just like cash, credit card, debit card or payment wallets, Buy Now Pay Later can be used as a payment method. It can be used creating an account on the service provider’s website or app, then logging in at the time of an online purchase or by displaying a purchase code through the mobile app in a store.
Another way to go about it is setting up an account for a BNPL program during the transaction process at a retailer and wait till you attain the approval for your spend from the provider. Generally, the approval is instant. Whether you can use a shop now pay later service or not will depend on whether the retailer is partnered with the BNPL service provider.
The installments to be paid would be deducted over time automatically from the bank account or card linked to your BNPL account at regular intervals. It could happen fortnightly, weekly or monthly, depending on the flexibility your BNPL operator allows you.
According to the Roy Morgan report, Afterpay and Zip (Zip Pay and Zip Money) are the market leaders in Australia and together they provide their services to over 12.3 million Aussies . Afterpay allows you to divide your shopping cart value into 4 equal instalments and pay every instalment every 2 weeks. Zip allows a more flexible repayment schedule (weekly, monthly, fortnightly). There are other BNPL platforms that allow you to select the dates of your repayments and offer a more supple repayment schedule.
Features of buy now pay later services
While every buy now, pay later service has a USP of its own, following are the basic features you are likely to find in most of them:
1. Different loan term options
Varying loan terms are offered by different providers depending on the retailers. For small purchases, the loan term can be smaller, from a few weeks to up to 6 months. As for purchases of larger amounts, loan terms might be 2 or more years.
2. Different purchasing power
Depending on the BNPL service provider you choose, you can be eligible for purchases costing $35 to $30,000.
3. Installment repayment frequency
Weekly, monthly and fortnightly repayment options are available to consumers whereas merchants are required to pay back in 4 installments, usually.
4. Convenient and paperless
Almost all BNPL services approve applications within minutes online or at the point of sale. The process of application as well as loan management of this financial product is done online, therefore no signatures or physical prints are required.
Unlike traditional loans, ‘line of credit’ products don’t just expire once your debt is all paid, you keep the card and use it again when needed.
6. Widely accepted
Buy now pay later is accepted everywhere a normal credit card is accepted. Though the merchant payment option is available only at partner merchants, there are various businesses offering BNPL as a payment option.
Though these services might seem like a saviour for your finances, there is a catch afterall.
Buy Now Pay Later: Here’s The Catch
One way the buy now pay later companies make money is by charging the retailer. The retailers benefit from companies like Zip and Afterpay because it removes one of the biggest roadblock to ‘closing a sale’- it enables you to spend the money you don’t have yet. Another way in which interest-free BNPL fintech platforms make money is by charging late payment fees. As repayment installments are deducted directly from your linked bank account, in case of insufficient funds and if you don’t reschedule your repayment, a late repayment will be charged.
Though the fee charged is nominal, it may vary from service to service and range between $2 to (or more than) $12. Additionally, order now pay later companies might also charge other additional fees like payment processing fee, early exit penalty fee or monthly account keeping fees. So, if you choose to make an account with any of the BNPL services, do read the fine print.
Do ‘buy now pay later companies’ run credit checks?
Any interest-based or interest-free platform that offers credit facility to consumers runs a credit check on your financial credentials. These programs do not report to any of the credit bureaus, however, the buy now, pay later services rather run a soft credit check on the profiles. A soft credit check means the company will confirm your profile details and run a check on your credit records for Part 9 Debt Agreements or bankruptcy. Although, this credit check will not show up on the credit score like a hard credit check would. You might not qualify for the service only in case you have a major default on your credit records.
Credit Cards VS Buy Now Pay Later
Millennials are saying NO to credit cards, everywhere in the world. According to the RBA, in the 12 months to Jan 2019, the number of credit cards and charge card accounts in Australia came down from 16.71 million to 15.89 million.
It isn’t just true for Australians, even the US millennials are trying to stay away from credit cards. A 2016 Princeton Survey Research Associates International found that 67% American millennials between 18 to 29 don’t carry credit cards .
The fear is not entirely baseless as the revenue models of credit cards relies on its consumers being in debt. If the customers pay off their debt on time, in dull, the credit card companies generate no revenue. This is why the industry needs heavy rules and regulations to protect the consumer.
Though BNPL does not charge any interest to customers and only levies late fees, the industry is not quite regulated. Currently, ASIC is looking at other nations, like Sweden, that have designed regulations to protect its consumers.
However, the BNPL operators keep on emphasizing their efforts towards consumer protection by taking the following measures:
- All the signatories or code-compliant members have to be Australian Financial Complaints Authority members
- The BNPL services is not to be offered to consumers under 18 years of age
- If a consumer misses an installment, they would be restricted from further use until the dues are cleared
- Consumer safeguards to help gullible and vulnerable consumers, including giving hardship assistance to consumers and not initiating bankruptcy proceedings against them
Why should businesses offer BNPL services
As millennials and other millions of consumers have begun adopting buy now pay later services, it is only smart for businesses, big, medium or small, to get associated with these programs. While it might sound like too much work or risky, contrarily, it will provide them with a lot of advantages. Below are some reasons why businesses must offer a BNPL service:
1.The young crowd prefer BNPL
Youngsters do not trust credit cards or other debt institutions but still want a convenient payment method for their shopping
2. Not all shoppers have credit cards
Yes, many consumers use credit cards for online shopping but not all shoppers own a credit card. Millennials also prefer using their debit cards, the shop now pay later service would be a good fit for consumers that don’t own a credit card and don’t want to rely on it completely
3. BNPL services boost sales
BNPL programs are preferred by various customers as it aids in eliminating their pain points at the time of checkout. Meaning that if a business offers them an easy payment solution, they might end up buying more, which would lead to more sales
4. Improves overall user experience
All’s well that ends well. A study suggests that 76% of US customers are more likely to make a purchase if a simple and seamless payment plan is offered. In the present era, a simple and clear payment method, in-store and online, is important to consumers and BNPL removes the friction from the purchasing process by addressing the financing issue of the customer during checkout
5. It is simply more affordable
At the end of the day, the customer is a business’s first priority. By allowing them to buy the products they want without them needing to worry about the finances, a business addresses the needs of the customer. Buy now pay later companies allow consumers to shop now and pay in installments which helps them manage their money better. Additionally, they love it when there’s no extra charges or hidden fees involved.
 Roy Morgan (2019) “Rapid growth in yoastuse of ‘Buy-Now-Pay-Later’ digital payments – such as Afterpay, zipPay and zipMoney” [Online] Available from: www.roymorgan.com/findings/8191-buy-now-pay-later-september-2019-201911040100 [Accessed October 2020]
 Australian Securities & Investments Commission (2018) “Review of buy now pay later arrangements” [Online] Available from: https://download.asic.gov.au/media/4957540/rep600-published-07-dec-2018.pdf [Accessed October 2020]
 RFi Group (2019) “How buy-now-pay-later success is changing the way consumers approach credit” [Online] Available from: https://www.rfigroup.com/rfi-group/news/how-buy-now-pay-later-success-changing-way-consumers-approach-credit-0 [Accessed October 2020]
 Roy Morgan (2020) “Awareness of buy-now-pay-later services Afterpay and Zip soars to over 12.3 million Australians” [Online] Available from: www.roymorgan.com/findings/8438-digital-payment-solutions-june-2020-202006090457 [Accessed October 2020]
 Bankrate (2016) “Survey: Surprisingly few millennials carry credit cards” [Online] Available from: https://www.bankrate.com/finance/consumer-index/money-pulse-0616.aspx [Accessed October 2020]
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