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.
The COVID-19 pandemic appears to have played a part in the increasing use of BNPL services. From a survey of 1,000 people, Openpay revealed that nearly a quarter of consumers who held BNPL accounts in Melbourne and Sydney only started using them since the COVID-19 outbreak. And 31% of respondents reported having at least one BNPL account – of these, around a third held more than one account.
While the usage of BNPL services continues to rise, the industry that is exempt 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.
To help you understand what BNPL involves for consumers, who some of the main providers are and how it could impact your finances, this article covers:
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 to buy a toy at Big W, for instance. 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, allowing customers to take them home immediately. The customers 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.
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.
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.
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.
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.
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.
Affirm (not yet launched)
- It remains to be seen how Affirm will operate when or if it launches in Australia, but in the United Statessplit it 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.
- 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.
Customers can buy clothing, baby products and more, as well as pay for Airtasker jobs.
Soon, people will be able to bank with Afterpay.
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.
- 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.
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.
- $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
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).
- 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.
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”.
- 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.
- 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 retailer 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.
- 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.
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.
- 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.
- 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.
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.
- Payments charged weekly or fortnightly over 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.
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.
- 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.
- 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.
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.