Buy now, pay later…sounds like a dream situation, right?
It means that you can “buy” a product and take it home without paying the full cost of the product up front! You are able pay for it over time through instalments. Sounds like Layby, but better! Unlike the traditional Layby payment option, you are able to receive the products before you have paid for the product in full. Depending on the size/cost of the product, you usually pay it off over a few weeks, or longer for those more significant purchases. You also aren’t required to pay any interest on your purchases, but you will be required to pay some sneaky ongoing account and admin fees.
In November this year, the Australian Securities and Investments Commission published some astonishing reports on the substantial growth within the Buy Now Pay Later industry since ASIC’s initial review in previous years.
The report graphs the explosive growth and popularity of these financial arrangements, outlining that the total amount of credit extended throughout the industry has nearly doubled, just within the past 12 months. The number of transactions in the industry increased by a massive 90%, jumping from 16.8 million in the 2017-18 financial year, to a whopping 32 million in the 2018-19 financial year. These figures clearly show the continuing rise in popularity in the flexible payment plan method.
Unfortunately, there are also some sobering and disheartening figures indicating that those who are entering into these payments plans (which are promoted as flexible and easy on the finances) are struggling to keep on top of their plans, and suffering financially. ASIC has reported that one in five customers are continuously missing regular payments. In the 2018-19 financial year, all of the Buy Now Pay Later providers recorded a missed payment fee revenue totalling over 43 million dollars. This is an alarming growth of 38% compared to the 2017-18 financial year. The reviews conducted were comprised of aggregated data from four major financial institutions, and six well known Buy now pay later companies including Afterpay, Brightepay, Humm, Openpay, Payright, and Zippay. ASIC also gathered consumer research to help understand consumer behaviours and their experiences, to support these somewhat shocking statistics gathered by the previously mentioned institutions.
Following these recent reviews providing the startling information above, ASIC needed to step in and help protect consumers. They declared that from October 2021 the Financial Design and Distribution Obligations will apply to all buy now pay later financial arrangements. These obligations require financial organisations to design products that genuinely meet consumer needs, use distribution channels that will target their most appropriate consumers, and drive better business and consumer outcomes. They also address causes of business misconduct that has been examined by the Royal Commission, such as the mis-selling of products, and the selling of inferior financial value products to consumers. Keeping consistent with the legislation and international practice, the implementation of this reform presents a great opportunity for the industry to demonstrate that they have a consumer-centric approach, and are better managing all customer financial and non-financial risks.
There is a generous transitional period for the industry to meet these new obligations in completely, which will come into full effect in April 2021.
In the above-mentioned ASIC research, they found that sadly one in five customers either missed, or were late in paying bills or loans, or cut back/went without essential meals in order to make their payments. These statistics prove without a doubt that it can be challenging to juggle your repayments on top of all other necessary financial commitments. When researching a Buy Now Pay Later financial arrangement, it’s essential to take the following considerations into account, before locking yourself into a potentially dangerous financial situation:
- Layby can be a cheaper option, as it usually doesn’t include any admin or account fees
- Late repayments can affect your credit report and loan applications, affecting your ability to borrow money in the future
- It can be easy to overspend, and the extra costs involved will add up
It is never a bad idea to consider all other options before committing to a seductive financial arrangement such as Buy Now Pay Later. This will ensure that you are only committing to an agreement that you are financially capable of seeing through, and one that completely serves your needs and comes without any tricks or hidden surprises.