Alarming buy now, pain later problems

NEARLY a fifth of consumers say they’ve had to compromise spending on essential items such as food in order to meet their buy now, pay later payments on time.

A new report on the emerging payments industry by the Australian Securities and Investments Commission has revealed 20 per cent of buy now, pay later (BNPL) users felt they had to cut back on essentials to meet payments.

ASIC’S report on the sector, which includes companies such as Afterpay, Klarna and Zip, also found 15 per cent of users were taking out additional loans to pay off debts with a BNPL provider.

The sector is predominantly seen as an alternative to credit card use and allows customers to buy goods and services on an instalment plan over several weeks.

The corporate regulator said while the payment structure was working for most customers, others were suffering harm from using the services.

“We are examining situations where consumers may be charged more by merchants for using buy now, pay later arrangements, and we are considering our regulatory options,” ASIC said.

“More broadly, there are already signs that some consumers are struggling with taking on too much debt through these arrangements.”

According to ASIC, about 50 per cent of users taking on additional loans or cutting back on essentials to meet payments are under the age of 30.

The regulator also found close to 44 per cent of users were on annual incomes of less than $40,000 and were likely to not meet traditional loan requirements for credit cards.

The BNPL industry from 2018 to 2019 has experienced a 90 per cent increase in usage, with the majority of customers aged between 18 and 29.