Buying now is easy, it’s paying later that’s tough: 2020 BNPL report

JP Pelosi

Tuesday 12 May 2020

Buy Now Pay Later report quick facts:

  • 30% of Australians have a Buy Now Pay Later account, equating to 5.8 million users.
  • Nearly two million Buy Now Pay Later users are unsure how they will pay for future payments as COVID-19 unemployment and wage reduction hits. 
  • 69% of Aussies with a Buy Now Pay Later account said they are ‘financially stressed’ by their payments schedule. 
  • More Aussie have been taking advantage of BNPL during lockdown to help pay for groceries, clothing, streaming services and gaming. 

Summary: Aussies love to spend but at what cost?

Buy Now Pay Later services have surged in popularity in recent years. The obvious lure of these services is that like a credit card, you can purchase products without having to pay the full amount upfront. In other words, you pay in installments over time, with many providers setting the payment schedule over three or four installments. Paying for things this way is fairly easy and on the surface of it inexpensive, too. However, Mozo’s latest consumer report has found that many Aussies are finding it difficult to manage their BNPL accounts. Some are overspending, others aren’t budgeting across multiple accounts and many are struggling to meet extra processing or late fees. This is adding up to some sizable bills but also significant levels of stress.

Topline Stats: BNPL users are stressed

Around two million Buy Now Pay Later (BNPL) shoppers in Australia are deeply concerned about payments they owe, new Mozo research shows.

These people admit they’re ‘not sure’ how they’ll meet their payment obligations despite having them deferred through a BNPL service. 
 
While uncertainty is one thing, stress is another. 
 
Almost 70% of BNPL users also say they are now feeling ‘financially stressed’ about purchases they have made, while more than half of those surveyed say their household finances are also causing strain to loved ones.

Easy money: How did we get here?

Paying for things later through digital services such as Afterpay, zipPay and Openpay has become increasingly popular in Australia, with about 6 million users locally. This despite the fact that most services charge fees for the privilege. These fees, and indeed the increased potential to spend beyond your budget, have seemingly tripped up many shoppers. 
 
In 2018, the Australian Securities and Investments Commission found that to meet BNPL repayments, one in six consumers had either become overdrawn on their linked bank account, had to delay other bill payments, or were forced to borrow money from family and friends.

Mozo’s study suggests that these issues continue today and have only been exacerbated by the broader economic impacts of the COVID-19 situation. 
 
In fact, some people are equally worried about using their credit cards. For instance, 49% of respondents say they’re not even considering using a line of credit during this time. 
 
At the same time, 22% of people are considering getting a new credit card. 
 
But perhaps even more revealing is that people in the 25-34 age group are more likely than any other to do this. Those aged above 45 were considerably less likely to get a new credit card right now.

Trying to get by

This new economic environment has certainly led many of us to review our shopping habits. 
 
For some, it’s meant reconsidering how they actually pay for goods and services. It’s therefore notable that over the last three months, 31% of users say they’re now spending less money through their chosen BNPL platform. 
 
Others are less persistent. Mozo found that 25% of BNPL users have actually cancelled their account.
 
Meanwhile, half of Aussie BNPL users admitted they were buying essentials on the platform just to ‘get by’, which suggests these shoppers have resorted to the BNPL option out of sheer necessity.
 
Adjustments are easily made for some. However, getting rid of a BNPL account isn’t an option for others, with scheduled payments still set to come out of their account in the weeks ahead. 
 
All of this makes sense under the circumstances: buying stuff is much easier than paying for it. And yet, Mozo’s research also shows that most BNPL users are hitting a snag even when the payments are small. 
 
In fact, 60% of BNPL customers said the option to make smaller digestible payments was influencing them to purchase when they perhaps normally wouldn’t. 

COVID-19’s Impact: It’s different now

Mozo Director, Kirsty Lamont says that while BNPL has enjoyed a meteoric rise, COVID-19 has indeed thrown a curveball at many BNPL shoppers. 
 
In light of this, she says it’s a concern that these customers aren’t protected by the same rights as other credit users.
 
“We’re seeing people who have made purchases before job losses or wage reduction, and these outgoing payments are now a tough pill to swallow,” says Lamont. “If you are struggling to meet repayments with your Buy Now Pay Later account, call your provider and see if they are able to offer you any kind of leniency.
 
“Buy Now Pay Later can be a good way to manage your cash flow, but before you make a purchase, weigh it up and ensure it suits your financial situation. If you find yourself in dire straits, you’re likely to receive more repayment leniency from the banks.” 

Shopping Impulse: Essentials only?

BNPL is clearly of benefit to those who can manage their money. And to be fair, BNPL is a handy service, not a requirement. Many of the providers of these services keep their customers top of mind. 
 
For example, Afterpay recently contacted Mozo to reiterate that anyone who is worried about their account simply needs to get in touch with the company. They are happy to work with customers to arrange a more flexible repayment plan. Surely other providers have a similar approach.
 
Still, those customers with poor financial discipline remain vulnerable to breaking the budget, especially when the ability to spend is made easier. Spending across BNPL tools during the COVID-19 lockdown also shows some people are shopping based on wants, not needs. This seems problematic, regardless of which payment type they use.
 
For example, while a great deal of BNPL spending has centred on essential items such as groceries (12%), food and beverages (12%), it’s notable that clothing (30%) has been the most popular category of spending overall.
 
By contrast, spending on items like electronics, homewares and self care decreased in purchasing frequency. This is perhaps a good thing, given the typically eye-popping price tags in those categories.

Keeping our spirits up

When it comes to general spending, we’ve perhaps been a little more liberal during lockdown, mainly because the majority of our shopping has been online. 
 
Mozo’s research shows that 37% of people are spending more money online at the moment, and the majority of them are male. To coincide with this, the majority of people (38%) say they are spending more in isolation. 
 
What are we buying exactly? 
 
Well, it’s pretty much what you’d expect: streaming subscriptions, video games, educational and craft supplies for kids, cooking equipment and, of course, alcohol.

Cents Check: Tips for buying now and paying later 

Paying for anything requires some common sense. Yes, Buy Now Pay Later is very easy, but it’s still a good idea to stay on top of your accounts.
 
Here are a few tips to keep your payments in check:
 
  • Create a budget: Having a budget means you’re less likely to overspend and wind up being unable to meet repayments.
  • Keep a record of your purchases: Stay on top of how much you’ve spent and know whether it fits into your budget.
  • Don’t over-commit: Small payments can add up, especially across multiple accounts on different platforms.
  • Set payment reminders: Don’t get hit by a surprise late fee.
  • Read the fine print: Be aware of any traps, obligations or even the rights you have as a consumer.

Want to know more about BNPL? Head over to our fintech hub
 
If you’re looking for a smart way to better manage your money, try our budget calculator.

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