Buy now pay later: Businesses respond
Kiwis spent about $1.7b on BNPL last year
The popularity of buy now pay later services is growing at a phenomenal rate as the sign-on rates for businesses and customers soar. Retailers say the services were expensive and businesses absorbed the costs -which could drive up prices for consumers however Afterpay said the merchant fee takes into account the benefits by partnering with them.
Afterpay and Zip, two of the largest players in New Zealand, have reported year-on-year increases and say their services are fairer and more transparent alternatives to credit cards.
It estimated Kiwis spent $1.7 billion on buy now pay later (BNPL) last year.
The Ministry for Business, Innovation and Employment said data suggested it was rapidly becoming an established form of credit in New Zealand.
Datamine records from 2019 to 2020 showed BNPL online transactions increased 57 per cent.
The number of active consumers doubled in the past two years, with an increase of 20 per cent in 2021.
Tauranga Business Chamber chief executive Matt Cowley said pay later schemes were great for customers who knew how they worked.
“They help customers meet their instant gratification needs.
“Pay later schemes help businesses by picking up sales that would have otherwise been abandoned by people who didn’t have cash on them.”
People had bought items using various forms of credit and IOUS and while the methods had changed the principle had not.
There would always be a need for small and immediate credit facilities, he said, but BNPL fees to businesses could be more expensive than credit card payments.
Cowley hoped the Government’s new regulation of merchant fees charged to businesses would cover all types of micro-financing, including pay later schemes.
Retail NZ chief executive Greg Harford said BNPL services were the fastest growing form of payment in New Zealand, and retailers were seeing a switch from card payments to BNPL schemes.
“There is strong consumer demand for BNPL from people who want to access credit but don’t want a credit card. This means retail firms increasingly need to offer BNPL to compete.”
He said from a retailer’s point of view, the big issue with BNPL was costs that were more than three times the average of credit card transactions.
“These costs are making it more expensive to do business and ultimately helping to drive up prices for consumers. Retail NZ would like to see BNPL schemes brought into the scope of the new retail payments regulatory regime, but the Government has not acted on this yet.”
An Afterpay spokeswoman said it had been a challenging few years for business owners but Afterpay had helped some weather the storm.
“Afterpay has changed the way people shop by giving customers the tools to access the things they need and want, while still allowing them to maintain financial wellness and control.”
About 90 per cent of Afterpay’s income was from merchants, rather than customers.
“Customers are never entrapped in revolving debt and never incur interest.
“We are focused on supporting our
community of shoppers.”
It could not disclose regionalspecific data but as of March, it had 144,000 merchants worldwide and about 20 million customers.
Afterpay charged a merchant fee of about 4 to 6 per cent. Benefits of partnering with it included access to a new budget-focused customer base, reduced fraud risk, more sales, dedicated marketing campaigns and a global Shop Directory, she said.
A Zip spokesperson said it had about 42,200 merchants in Australia and New Zealand - a 22 per cent increase year on year.
Its customer base across both countries was 3.2 million, a jump of up 14 per cent year on year while the total transaction volume for ANZ as recorded in its Q4 earnings was $956.7m.
She said BNPL was a better, fairer and more transparent alternative to a credit card.
“With rising inflation and cost of living pressures, the ability to manage credit responsibly is more important than ever.’
“BNPL products like Zip Pay are interest-free with flexible repayment schedules, and customers have access to great deals, sales and cashback rewards.”
From a retailer’s point of view, the
big issue with BNPL was costs
that were more than three times the average of
credit card transactions. Greg Harford, Retail NZ chief executive
The top categories customers were buying in were electronics and white goods, homewares/home furniture, clothing and apparel, car/vehiclerelated expenses and health/beauty items.
Customers that had overdue repayments would have their accounts frozen and default fees were capped at $40 and did not compound meaning debt could not “spiral” and potentially result in a “debt trap”.
She said Zip NZ also had a local team trained to identify hardship and a specific hardship policy. Applications are assessed case-bycase, but will often result in deferred payment arrangements, a personalised repayment plan being implemented, or the reversal or waiving of late fees.
Zip said it could not disclose what it charged a business to use its service and did not respond to concerns those fees were high.
Centrix managing director Keith Mclaughlin said its June Credit Indicator showed customer inquiries for BNPL and new credit card demand dropped during the month 32 per cent and 22 per cent year-on-year, respectively.
Rotorua Budget Advisory Service manager Pakanui Tuhura told NZME last week BNPL services became an issue when people did not pay on time as the penalty charges were “substantial”.
At the same time Bay Financial Mentors manager Shirley Mccombe said the sector had “huge concerns” about clients accumulating debts on
buy now, pay later services.
They were being used for dental work, car repairs and tyres, food, clothing, shoes, haircuts, feminine hygiene products, alcohol and even vouchers.
“If managed well, it can be a good solution, but so often it is not.”
An MBIE spokesperson said it was reviewing 63 submissions about the services, which included alcohol sales and credit being extended to those who cannot afford it.
It would report to Commerce and Consumer Affairs Minister David Clark, who was expected to bring a proposal to the Cabinet soon to decide the Government’s approach.