Buy now pay later services

If you are one of the many Australians using ‘buy now pay later’ services, you may want to compare providers and consider if it’s the right payment option for you.

We break down how buy now pay later generally works and the main costs involved.

 

Find out more about these type of services:

What is buy now pay later?

What is ‘buy now pay later’?

Buy now pay later (BNPL) is a service that allows consumers to purchase goods or services and pay for them in installments over a period of time. It has similarities with the lay-by system you might have used previously. Where lay-by sees a store put goods aside for you and then pay for them in two or more instalments before taking your purchase home, BNPL services generally involve the provider paying the retailer for goods up front, allowing customers to take their purchases home immediately. The customer then pays for the goods in instalments, which go to the BNPL service instead of the store. The services can be used at a growing number of retailers in Australia, in-store or online.

How does buy now pay later work?

BNPL services are offered at certain retailers as another method of payment, rather than using your typical cash, debit card, credit card or PayPal account.

You can apply to use BNPL via the provider’s app or website and then log into your account during an online transaction or display a purchase code via the app in a store. Alternatively, you could have an account set up for the first time during the transaction process at a retailer and wait to receive approval for your spend amount from the BNPL provider. Approvals for BNPL are generally processed shortly after you provide your details.

Whether or not you can use BNPL will depend on if the retailer is partnered with the service. BNPL providers may also do a credit check on you, so you may not be approved if you have a poor credit rating.

BNPL allows customers to buy things without having to take out a traditional loan, credit card or pay interest (in some cases). However, there are often late payment fees attached and the payment method could wind up costing you the same as taking out a credit card or personal loan.

The repayments you pay would typically be deducted automatically from the card or bank account you have attached to your BNPL account. This happens at regular instalments – commonly fortnightly. If you don’t have enough money in your account at the time of the deduction, the BNPL provider may charge you a late fee. Some BNPL services may also charge additional fees or interest if you fail to fully repay a purchase within a certain timeframe.

Online shopping

 

How are people using buy now pay later services?

You might think a service like BNPL would mainly be used to buy relatively low-cost clothes and accessories, but this is not necessarily the case. With Afterpay, for instance, you can pay for more expensive goods and services such as IVF treatment, purchasing glasses or contact lenses, going to the dentist or getting veterinary care for your pet.

The buy now pay later (BNPL) industry has changed the payments landscape in Australia, with the services being used as a spending and budgeting tool by some, but racking up debt for others.

ASIC released a report on the buy now pay later industry in November 2020 which revealed the substantial growth to the sector. The number of BNPL transactions increased from 16.8 million in the 2017-18 financial year to 32 million in 2018-19, representing an increase of 90%.

As a result, there’s been a considerable increase in BNPL debt in 2020, as revealed in Canstar’s latest Consumer Pulse Report. Close to one in five (18%) people surveyed said they have debt in the form of one BNPL service, up from 10% in 2019. The majority (56%) of Australians with debt still hold most of it on a credit card, but that’s down from 67% in 2019.

While the usage of BNPL services continues to rise, the industry – which is exempt from some of the regulation applied to other forms of credit such as the National Credit Code – hasn’t escaped scrutiny about how vulnerable consumers could be accumulating more debt and be worse off financially by using these payment methods.

Are buy now pay later services worth it?

BNPL services can be convenient forms of payment for some, and may appeal to people who want to spread out their payments but still receive a product instantly, without having to use a credit card. But there could also be some of the following significant financial risks involved:

People who may already be financially vulnerable are relying on these services the most

Roy Morgan Research in 2019 found people aged between 14-34 accounted for the biggest pool (55.9%) of Australian BNPL users, of whom most tended to be employed, but earning an average or relatively low wage.

In a report released in November 2020, ASIC found one in five consumers in the past year had missed or were late paying other bills in order to make their BNPL payments on time. Missed payments included things such as household bills (44%), credit card payments (32%) and home loan repayments (22%).

ASIC also found some consumers were experiencing financial hardship in an attempt to make BNPL payments on time, with reports of people cutting back on or going entirely without essentials such as meals, or taking out additional loans.

While most of the services are interest-free, costs can still quickly add up

Afterpay, for instance, has been reported to make a significant chunk of its income from late fees, with the remainder coming from surcharges on its retailers. It since implemented a cap on late fees following scrutiny of its business model by consumer groups and regulators, cutting fees for each order above $40 off at 25% of the purchase price or $68 (whichever is lower). For orders less than $40, a maximum of $10 in late fees can be applied per order.

Most BNPL services say they will notify customers of upcoming payments, and suggest getting in touch if you think you might be unable to make a payment on time. It could be a wise idea to check the service’s policy before signing up.

BNPL services are not subject to the National Credit Code

ASIC stopped short of recommending new consumer protections for the BNPL industry, in its review published in November last year. The industry is not subject to the National Credit Code, meaning that customers who use these services do not have the same kind of protection as they do with credit cards or personal loans, which are regulated by the Code. It also means there is no requirement for a BNPL service provider to adhere to responsible lending obligations, such as by checking if you can actually afford to make the repayments.

ASIC has recommended BNPL platforms take steps to ensure their products are only targeted to appropriate customers, and that new checks and balances be implemented in a voluntary code of conduct, which is expected to be launched in March 2021.

BNPL providers have previously argued that applying the National Credit Code would slow down the approval process for customers, which currently tends to be rapid and easily accessible.

What's more financially responsible: Credit cards or buy now pay later?

Canstar asked consumers what form of payment they felt was more financially responsible: a credit card or buy now, pay later services such as Afterpay and Zip. Of those surveyed, 60% said they viewed credit cards as more financially responsible, down from 68% the year before.

The younger generations had a more favourable opinion of buy now pay later services. Canstar’s research showed 62% of Gen Z thought buy now pay later was more financially responsible than using a credit card, while only 27% of Baby Boomers thought so.

Infographic of buy now pay later interest
Canstar Consumer Pulse Report 2020.

Do buy now pay later providers do a credit check?

Most BNPL providers say they may perform a credit check on you, which means you may not be granted “instant approval”. The credit check could be done when you apply for an account, and some providers may also do this when you make a transaction to make sure you can make the repayments. In some cases, a credit check may be recorded on your credit report.

It’s worth also noting that your credit score may be affected in other ways if you use these services, according to ASIC. This is because if you take on more credit than you can afford and can’t keep up with repayments, your BNPL provider may report any late payments or defaults to credit reporting agencies.

But whether or not a credit check is conducted and whether your credit score will be impacted will largely depend on the BNPL platform you are using. That’s why it’s important to read their terms and conditions carefully before deciding to sign up or make a purchase with a BNPL provider. Here are some examples of what some of the prominent BNPL providers in Australia say they do when it comes to credit checks for their customers:

Afterpay

  • Afterpay says it may order a credit report and perform “other repayment capability checks” to assess your ability to make payments, and may report any negative activity on your Afterpay account to credit reporting agencies. Such activity could include late payments, missed payments, defaults or chargebacks.

Bundll

  • Bundll says it won’t check your credit history or leave an enquiry footprint on your credit file, but it will for those who access superbundll.

Laybuy

  • Laybuy performs a credit check on all new customers who register for its payment platform. Any payment default may result in its debt collection service contacting you, and your credit score may be affected.

Openpay

  • For some purchases with Openpay, customers may be asked to consent to a credit check before making the purchase.

Splitit

  • Splitit claims credit ratings will not be impacted at all by declined payments and there is “no impact” on customers’ credit scores.

Zip

  • Zip says it may perform a credit check upon application to the service, to confirm you can make repayments. The checks are actually performed by third parties Equifax or illion.

If you’d like to read more information about buy now, pay later services, you may be interested in the following articles:

Compare buy now pay later providers in Australia

Below are some of the buy now pay later providers in Australia (listed alphabetically), and some information about how they work and what they cost. It’s important to check with individual providers to confirm details about the service.

What is Affirm?

Affirm is a United States-based buy now pay later company and one of the largest in the world. It is rumoured to be considering expanding its operations to Australia.

How does Affirm work?

  • It remains to be seen how Affirm will operate when or if it launches in Australia, but in the United States, the provider allows its customers to apply for a loan and purchase goods via a virtual card in the app.
  • It offers monthly repayment schedules over the course of three, six or 12 months, but also has options up to 48 months for “really large loans”.
  • It doesn’t specify a credit limit on the Affirm website, but says there is no limit to how many purchases you can have at one time.

What does Affirm cost?

  • Affirm charges interest, depending on the size of the loan, though the amount of interest charged is not specified on its American site.
  • It doesn’t charge any late fees, prepayment fees, annual fees or fees to open and close accounts.

What is Afterpay?

Afterpay is Australia’s largest BNPL platform and is widely regarded as the industry pioneer. It is a payment platform which allows customers to buy a product in-store or online now and pay for it later interest-free instalments.

Customers can buy clothing, baby products and more, as well as pay for Airtasker jobs.

Soon, people will be able to bank with Afterpay.

How does Afterpay work?

Shop online: Choose Afterpay as your payment method at the checkout.

Shop in-store: Open your Afterpay app to scan your barcode for payment at the checkout.

For both online and in-store transactions, Afterpay says it takes the first repayment (usually 25% of the total purchase price) from customers at the time of purchase. It also says it sometimes carries out a “pre-authorisation check” by taking a small amount from a customer’s account – up to the value of your first instalment plus 1 cent for online purchases and up to 25% of the value of an in-store barcode plus 1 cent – to make sure the customer’s nominated repayment card is working. Following the check, Afterpay says these transactions will be voided so customer are not charged.

What does Afterpay cost?

  • Pay in four evenly split, interest-free fortnightly payments.
  • Late payment fee of $10 applies, but it does not accumulate above 25% of the purchase price or $68 (whichever is less), or above a single $10 fee for purchases under $40.

What is Brighte?

Payment plan for homeowners to pay for solar, batteries and various home improvements over time.

How does Brighte work?

Step 1: Request quotes from Brighte vendors on the Brighte marketplace online.

Step 2: Apply for the 0% interest payment plan online or via the app.

Step 3: Payment plan activated once the vendor has completed your job.

Payment plans: You can apply for a 0% interest plan for payments of up to $30,000. You can also request pre-approval for payments of up to $15,000. Additional fees and charges may apply.

What does Brighte cost?

  • $1 weekly account keeping fee
  • $4.99 late payment fee
  • Total fees capped at $49.90 per year, which is equal to 10 missed repayments

What is Bundll?

Payment platform that says it will allow users to make delayed payments for everyday spending on any personal or household purchases – such as groceries and fuel – at stores that accept Mastercard.

How does Bundll work?

Shop online: Use the digital card from your Bundll app to pay for online purchases at merchants that accept Mastercard transactions.

Shop in-store: Use your digital card stored in your Digital Wallet to make transactions in-store at merchants that accept Mastercard transactions.

Credit limit: A $180 minimum credit limit applies or $0 for the superbundll credit limit. Bundll states the maximum credit limit is $1,000, or a combined limit of up to $4,000 with the superbundll ($1,000 for bundlls and $3,000 for superbundll).

What does Bundll cost?

  • No interest
  • $10 late fee applies if after the 24-hour grace period there are any outstanding repayments. Your bundll account will also be suspended meaning you won’t be able to spend anymore.
  • Pay off purchases within 14 days or “snooze” payments for another two weeks for $5. You can collect free snoozes by referring friends to the service.
  • Roll purchases into a “superbundll” and pay it off in six fortnightly payments.

What is Humm?

Buy ‘Little things’ or ‘Big things’ (as Humm classifies different spend types) and pay it back in fortnightly or monthly repayment plans. Customers can buy clothes, jewellery and watches, solar energy, bedding and more.

How does Humm work?

Pre-approval: Tell Humm, via the app, how much you would like pre-approved for spending, or they can also pick a limit for you. This process will require providing your bank statements. Pre-approval lasts 60 days.

Shop online: Choose Humm as your payment method at participating retailers and pay your first instalment upfront.

Shop in-store: Display your Humm barcode in the app to staff at the retailer and they will be able to access your pre-approved spend amount.

Spend limits: Up to $2,000 for “Little things” or up to $30,000 for “Big things”.

What does Humm cost?

  • Interest-free
  • Spends of up to $2,000 can be repaid in either: 5 fortnightly repayments with a $6 late fee applicable, or 10 fortnightly repayments with an $8 monthly fee and $6 late fee applicable.
  • Spends of up to $30,000 can be repaid in 6-60 months, with an $8 monthly fee, a $35-$90 establishment fee, a $22 repeat purchase fee and a $6 late payment fee applicable.

What is Klarna?

Klarna has a shopping app, where customers can buy items using a buy now pay later system. Users can also shop at individual retail sites outside the app, as long as that retailer allows Klarna payments. The Stockholm-based company launched in Australia in January 2020 and is part-owned by the Commonwealth Bank.

How does Klarna work?

  • Once customers – who must be at least 18 years-old – are verified and approved, Klarna will carry out a credit check when you attempt to make your first purchase to determine your ability to make payments. Klarna says this check will be valid for 90 days and it will perform another check if you attempt to make another purchase after that time. It says this check will be visible on your credit report but does not directly impact your credit score.
  • For stores that haven’t partnered with Klarna, a ‘ghost card’ linked to your personal credit or debit card will need to be created in the app. Customers can use the virtual, single-use, prepaid card for purchases and payments, and set the dollar amount they wish to spend. Card transactions are capped at $1,000, and so is the total amount of money you can have on a ghost card at once. You will need to enter the card details Klarna provides you at the checkout to complete a purchase using the ghost card.
  • Customers can make BNPL purchases online with partner retailers through the Klarna app, or pay at non-partnered stores that have Visa checkouts with a ghost card.
  • Commonwealth Bank customers can also access Klarna via their CommBank app.
  • A minimum spend of $35 applies to purchases using Klarna.
  • Klarna says customers can receive price-drop notifications and exclusive discounts via the service.

What does Klarna cost?

  • Klarna lets you pay in four fortnightly instalments with no interest using its BNPL function. The first payment will be charged when the seller confirms your order.
  • Klarna late fees are dependent on the amount spent:
    • $35 to $59.99 spend incurs a $3 late fee, capped at $9 per order
    • $60 to $99.99 spend incurs a $5 late fee, capped at $15 per order
    • $100 to $199.99 spend incurs a $7 late fee, capped at $21 per order
    • $200+ spend incurs a $15 late fee, capped at $45 per order
    • Klarna customers can opt to ‘snooze’ their repayments temporarily to avoid late repayment fees on purchases valued at more than $60, but will be charged for choosing this option based on the value of the order being snoozed.

What is Latitude Pay?

Payment platform that allows customers to buy items such as appliances, pet products and homewares in interest-free repayments.

How does Latitude Pay work?

Shop online: Choose Latitude Pay as a payment option at the online checkout, apply for an account if it’s your first time (approval is typically instant, the provider says) or login, then pay 10% of the purchase price upfront and the rest later.

Shop in-store: Create an account online and ask to use Latitude Pay at the checkout. You will receive a text message with a link to enter your payment details, then wait for approval before paying the 10% upfront charge.

Credit limit: Up to $1,000.

What does Latitude Pay cost?

  • Pay 10% of the purchase price upfront and the remainder in nine weekly payments.
  • No interest.
  • A $10 late fee applies if you miss a payment.

What is Laybuy?

A payment solution – not to be confused with the lay-by payment system – that allows customers to buy items and pay for them over time with interest-free repayments.

How does Laybuy work?

Shop online: Create a Laybuy account on its website or at the checkout, at which time Laybuy will perform a credit check and then, if approved, assign your spending limit. You will then be able to make a purchase. Laybuy has an app where you can check your balance, upcoming payments and updates from the provider.

What does Laybuy cost?

  • Pay in six interest-free payments, once per week. The first payment is charged once you complete your order.
  • Zero upfront fees charged.
  • A $10 late fee applies to each missed payment.

What is Openpay?

Payment plans that allow you to pay for things over time, such as clothes, servicing your car or going to the dentist.

How does Openpay work?

Shop online: Choose Openpay as your payment method at the checkout, and pay your first instalment on the spot, which is usually 20% of the purchase price.

Shop in-store: Open your Openpay app to scan your barcode for payment at the checkout, where you will be charged the first instalment on the spot, which is usually 20% of the purchase price.

What does Openpay cost?

  • Payments charged weekly or fortnightly over a period of 1-24 months, depending on the spend amount.
  • No interest charged.
  • Plan fees may vary depending on the retailer and the plan amount of the purchase. For example, Openpay explains that the following applies for purchases made from Bunnings: Fees of $0.50 per fortnight for purchases up to $1,000, paid over two to three months; spend over $1,000 and up to $15,000, you will instead be charged a $25 start up fee and then $2.50 per fortnightly repayment (with repayments ranging from six to 18 months, depending on the spend amount).
  • A management fee may be charged on each repayment as well, depending on the merchant.
  • Default fee of $9.50 if you miss an instalment.
  • Referral fee of $19.50 if your payment is late for eight days or more.
  • Plan fees are capped at $200 in the first 12 months of the contract, and $125 each subsequent year.

What is Payright?

Payment platform that allows customers to shop for items or services and pay for them over time. Customers can use Payright for dental work, camping equipment, beauty appointments and more.

How does Payright work?

Shop online: Choose Payright as your payment option, complete the application process (which typically takes a couple of minutes) and get instant approval.

Credit limit: Up to $10,000.

What does Payright cost?

  • Pay in interest-free fortnightly or monthly instalments with terms of up to 36 months.
  • Establishment fee of up to $59.95 to establish your account.
  • Monthly account keeping fee of $3.50.
  • There is a payment processing fee of $2.95 which is added to each repayment.
  • Late payment fee of up to $12.95 which will be charged separately, in addition to the overdue payment.

What is Sezzle?

Payment plan for online purchases, with payments split equally over six weeks. Customers can buy electronic appliances, clothes, beauty products and more at participating retailers.

How does Sezzle work?

Select Sezzle as a payment method at checkout. You’ll be notified of what payment plan you’re approved for at checkout, including how much is due upfront (typically around 25% of the purchase price) and when the next scheduled payments will be.

What does Sezzle cost?

  • Fortnightly payments, typically spread over six weeks.
  • No interest or processing fees.
  • $10 failed payment fee charged if you miss an instalment, but it will be waived if you pay it within 48 hours of your original due date.
  • You can reschedule your payments for free the first time, but it’s $5 per reschedule after that.

What is Splitit?

Split payments for a purchase using your existing debit or credit card. Purchases could include beauty and fashion products, electronics and jewellery.

How does Splitit work?

Credit card: Splitit requests authorisation from your lender to reserve the total purchase amount from your line of credit, then charges the instalment each month. They continue to request authorisation for the remaining balance each month.

Debit card: Splitit requests authorisation from your institution to reserve the total purchase amount from your account, and then at the time of purchase you’ll be charged the first payment. The entire amount is held on your debit card temporarily and released within five business days.

What does Splitit cost?

No fees or interest applicable outside of your usual credit card charges.

Splitit’s website indicates the company makes its money by charging merchants fees to use its services.

What is Zip Money?

Buy products now and pay for them later using your Zip account. Zip Money is not interest-free, but allows for larger purchases than Zip Pay. Participating retailers include Officeworks, Kogan and Fantastic Furniture.

How does Zip Money work?

Shop online: Select Zip Money as your payment method at the checkout and enter your six-digit code received via SMS.

Shop in-store: Open the Zip app to have your barcode scanned. If the order amount is greater than your available funds, you may be able to get a credit limit increase or split payment methods with the retailer.

Credit limits: Above $1,000. You can request a credit limit decrease, or increase of up to or above $5,000.

What does Zip Money cost?

  • Monthly, fortnightly or weekly repayments at an amount of your choice (minimum $40 per month), paid via direct debit. Additional payments are accepted.
  • No interest for three months (and can extend up to 50 months in some cases), but an interest rate of 19.9% p.a. applies for new customers after this interest-free period ends.
  • Establishment fee from $25 when you sign up.
  • Monthly fee of $6 if there is an outstanding balance.
  • Late fee of $15 if you don’t make your minimum repayment within 21 days of the due date.
  • Bank dishonour fee of $15 if bank details were incorrect or there were insufficient funds.
  • Note that some retailers may apply a processing fee. Fees may also apply to transactions in a foreign currency.

What is Zip Pay?

Zip Pay is an interest-free BNPL method. Participating retailers include Bunnings, Kmart and Target.

How does Zip Pay work?

Shop online: Select Zip Pay as your payment method at the checkout. Zip Pay says it will pay the store for you, meaning you pay nothing upfront. Alternatively through the provider’s ‘Tap and Zip’ function, if you have connected your Zip Pay account to Apple Pay or Google Pay on your phone, you can select either of these payment methods at the checkout. Zip Pay says you can also use its app to generate a single-use Visa card to shop online inside.

Shop in-store: Zip Pay says its ‘Tap and Zip’ feature is the main way to pay for goods in-store. This works by allowing users to add a Visa card associated with their Zip Pay account to Apple or Google Pay on their mobile device. Users can then pay in-store using Apple Pay or Google Pay anywhere these payments methods are accepted.

Credit limits: Maximum of $1,000.

What does Zip Pay cost?

  • If you make your minimum repayment ($40 per month) but don’t pay your balance back in full by the end of the following month, a $6 account fee will be charged.
  • There’s also a $5 late fee if you don’t meet your minimum monthly repayments within 21 days after they’re due.
  • Zip Pay says a $15 dishonour fee will apply if your payment is rejected by your bank.
  • You can make a repayment schedule that suits you (weekly, fortnightly or monthly) if your monthly minimum spend was more than $40.

Latest in Buy Now Pay Later Services

Feature image: Sashkin/Shutterstock.com 


This article was reviewed by our Deputy Editor Sean Callery before it was updated as part of our fact-checking process.


Ellie McLachlanEllie is a Senior News Journalist within the Editorial team at Canstar, responsible for leading the news function for the business. She specialises in covering all things home loans and housing, breaking finance industry news and monitoring financial product movements. Ellie has a keen interest in analysing data and research, and is passionate about sharing people’s personal experiences with managing money. Ellie studied a Bachelor of Journalism and Arts (Peace and Conflict Studies) at UQ and has dipped her toe in digital, broadcast and print media, including at organisations such as The Urban List, The Courier Mail, 4ZZZ and APN News & Media. Follow her on Twitter and LinkedIn.

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