Buy Now Pay Later (BNPL) services are likely to attract more attention from regulators as they become increasingly popular with consumers.
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A report from the price comparison website Finder shows that spending on the payment method increased 49 percent in the March quarter compared to the same period last year.
BNPL methods allow consumers to purchase goods on credit and pay off their debts through incremental payments.
According to the report, a third of all consumers have used such services in the past three years, while around 50 percent of those under the age of 35 have used the payment method.
Finder’s money specialist Kevin McHugh said there were a number of reasons why the BNPL services were skyrocketing in popularity.
“They’re far more accessible than other forms of credit. Your next comparison is likely to be a credit card, but a credit card would require an application and a credit check, while” Buy Now “and” Pay Later “that means it doesn’t . “
The report says that BNPL services took advantage of perspective theory by allowing consumers to pay for a product in small installments and reducing the pain associated with a purchase as the perceived cost is lower.
“Buyers get the same reward at a fraction of the cost – or at least that’s what it feels like,” the report said.
The “buy now” component is said to encourage insufficient pre-purchase thought and targeted younger age groups in order to buy what they want rather than what they need.
McHugh said one reason these services became so popular with younger people is because they worked with stores that people wanted to buy goods from, including expensive fashion brands.
Debt worries
The Finder report found that 38 percent of all consumers were extremely or rather concerned about their current debt levels.
However, for consumers with BNPL debt, that number rose to 63 percent.
About 17 percent of New Zealanders had BNPL debt, with the average outstanding balance being $ 418, the report said.
“The accessibility and interest-free appeal of BNPL can make it easy to go into debt if you don’t make your repayments on time,” said McHugh.
The report showed that the maximum late fees a customer could pay on a purchase of $ 100 over eight weeks was $ 50.
Meanwhile, a credit card holder would pay $ 3 at an interest rate of 19.4 percent over the same period, the report said.
Regulatory measures?
Unlike credit cards, BNPL services are not covered by the Loan Agreements and Consumer Financing Act.
McHugh said that as these services become ubiquitous and used to purchase a wider range of products and services, he suspected regulators would investigate them more closely.
“This means that ‘bad’ borrowers may find it easier to get approved for BNPL, which increases the likelihood that they will go into debt.”
The report can be found here.
