Australian customers, collectively, owe $903 million in “buy now, pay later” debts, following a surge in popularity of Afterpay, Zip Pay and their various competitors.
That was the key finding by the Australian Securities and Investments Commission in its first review of the rapidly growing sector.
The corporate watchdog also found:
- There was a 400-per cent jump in the number of customers who have used buy now, pay later schemes – from 400,000 to two million (between the 2015/16 and 2017/18 financial years)
- The number of transactions lifted from 50,000 (in April 2016) to 1.9 million (in June 2018)
- One in six users found themselves in financial trouble as a result — from becoming overdrawn, delaying bill payments, and needing to borrow more money to pay off that debt
- The typical user is “young”, with 60 per cent aged 18-34.
- Buy now, pay later schemes are seen by many as “modern day lay-by”. The key difference is that customers can take their goods home immediately, without first needing to pay off every instalment.
Some providers, such as Afterpay, offer fixed-term repayment terms of up to 56 days for amounts up to $2000.
Other companies like Zip Co — which operates Zip Pay and Zip Money— offers customers credit “of every size, from $1 to $30,000”, according to its website.
ASIC also reviewed the operations of Certegy Ezi-Pay, Oxipay, BrightePay and Openpay for its report.
Tougher laws ahead
ASIC is investigating businesses in this sector because, unlike banks, they are not currently required to lend responsibly or perform credit checks under the National Credit Act.
However, the regulator considers these arrangements to be “credit facilities” – an assertion that Afterpay denied – therefore giving it the power to act if a buy now, pay later company engages in misleading or unconscionable conduct.
It is also concerned that use of these services tends to result in customers buying more expensive items than they would otherwise, and spending beyond their means.
“Although our review found many consumers enjoy using buy now, pay later arrangements and plan to continue using them, there are some potential risks for consumers in using these products,” ASIC commissioner Danielle Press said.
“We found that buy now, pay later arrangements can cause some consumers to become financially overcommitted and liable to paying late fees.”
Afterpay revealed, in its latest annual report, its income from late fees surged 365 per cent to $28.4 million.
Some cosmetic surgery clinics have also been encouraging young women to sign up to “pout now, pay later” schemes through Zip Pay and other similar providers.
Last month, the Federal Government released draft laws that would introduce “product-intervention powers” for ASIC.
It is essentially a new power for ASIC to intervene “proactively” if it believes there is a risk of “significant consumer detriment” arising out of a financial or credit service.
These new powers have not yet been enacted into law, and are expected to put further pressure on buy now, pay later companies.