Paying later with the likes of Afterpay still popular but some let costs linger

Buy Now Pay Later has caught some heat lately, especially because it isn't labelled as a credit product. This means it currently escapes credit regulation, though the government is seeking to change this as soon as 2023. 

In short, it's a payment type that while popular among younger Aussies, divides financial commentators. On the one hand it offers convenience and flexibility, while on the other, it can be risky in the wrong hands.

It's easy to see the worries some people have with the concept: BNPL allows users to make purchases without cash in hand, essentially deferring payment to a later date. This sort of arrangement might be helpful to those struggling with current high living costs - but only as long as they can make the repayments later and not amass numerous late fees (some services charge a separate late fee for every single transaction, not a single fee on an accumulated debt). 

Indeed, many have argued that the BNPL set-up is problematic because many people do not make these repayments on time. 

So where are Aussies with buy now pay later?

Let's consider some numbers: E-commerce company Power Retail has released a new report that indicates 50% of Aussies have used a BNPL service in the last six months to the middle of 2022, which maybe isn't that surprising. What is a bit alarming is that 14% of consumers have paid a late fee for an overdue 'instalment' in the same period compared to just 7% in 2020, says Power Retail.

So the number of people missing a repayment has doubled.

The same report suggests that users aren't put off by the threat of fees however, with 74% of Aussies saying they are more likely to make a purchase online if the shop offers BNPL, and 66% saying they are likely to spend more on a single purchase if BNPL is offered. 

According to the same survey, Afterpay is easily the most popular BNPL service and Zip is second. 

Another report from the Australian Finance Industry Association (AFIA) in June indicates that BNPL's use is widespread in Australia, with 5.3 million active accounts and more than 50% of people saying that they prefer BNPL to credit cards. 

We also need to consider these numbers in context because 5 million is just one-fifth of our population and preferring BNPL to credit cards isn't really a definitive statement given that you need a payment form - be it debit or credit - to actually operate a BNPL account. 

Maybe more telling is that the average BNPL user makes about 17 transactions per year with their respective BNPL service(s) and the average transaction is about $150. On top of this, about half of these people use BNPL to better manage their cashflow, the AFIA report says. 

Using BNPL effectively, or not

Whatever your opinion of BNPL, it seems many people are using the service to their advantage - to delay some upfront expenses and better manage their budget. This approach might be useful for some people and indeed, according to reports such as the one from the AFIA, younger consumers have taken to it far more than older people, presumably with this tactic in mind. 

A further drawcard is that there is no interest charged on what is effectively a form of credit, or a loan. And yet, BNPL doesn't come without pitfalls because if you are late on repayments, you'll typically be hit with those aforementioned extra charges. The government's Moneysmart site says that late fees are usually between $5 and $15 but that there might additionally be monthly account keeping, payment processing and establishment fees. 

If you were to pay with a credit card, well then you'd have those specific card related interest fees to consider as well. 

Tips for shopping with buy now pay later 

At the end of the shopping day, it's best to use BNPL in a conservative fashion and that would mean imposing a limit on what you use it for and sticking with one BNPL service rather than many. 

Another useful tip is to use a debit card rather than credit card because at least you know it's money you have and you won't face the issue of a card's annual interest rate. 

Whichever service you prefer, be it Afterpay, Zip, Klarna, Brighte or otherwise, read up on their rules and know their fees. If you can stay on top of your BNPL repayments, you can potentially use it in an effective way.

Mozo's Buy Now Pay Later hub compares the leading services in Australia. If you're keen to explore some debit cards or credit cards to help manage your expenses, our experts compare some of the best in the market.