Sell now or Pay Later, page-32

SECOMMERCEIOT SEARCHSUBSCRIBEINSIGHTS/MUST READSCOVER STORY: Buy Now Pay Later Debt Will Soon Hit $1 Billion. How Sustainable Is The Model? Athina Mallis and Andrew Birmingham / July 15, 2019Home > Insights > COVER STORY: Buy Now Pay Later debt will soon hit $1 billion. How Sustainable is the Model?As Australia’s buy now pay later (BNPL) bill races towards $1 billion, driven by the popularity of services like AfterPay and ZipPay, research commissioned by Which-50 paints a picture of growing impulsivity — especially by younger consumers — and raises some questions about the sustainability of the model.According to ASIC, as at 30 June 2018, Australians had racked up $903m in outstanding BNPL balances.Data on consumer attitudes to BNPL collected and analysed on behalf of Which-50 by PureProfile describes how the availability of these platforms has impacted purchase behaviour. The study also reveals that a significant minority of users — almost one in three — have missed payments at some point.Before BNPL, 29 per cent of the respondents said they would have either saved up their funds before making the payment or wouldn’t have made the purchase at all (22 per cent.) The other half would have used a credit card. In fact, a quarter of users have set up a system of cascading debt by using their credit card to pay their outstanding BNPL balances.According to Uwana Evers, the Pureproifle data scientist who managed the survey, “Over two-thirds of the sample (68 per cent) stated that they never miss their buy now pay later repayments, and therefore, did not incur any additional fees. Just over a quarter of the sample (28 per cent) responded that they rarely or sometimes missed their BNPL payments. Only four per cent of respondents stated that they usually or always miss their scheduled repayments.”Consumer repayment behaviour on buy now pay later services. Source: Which-50/Pureprofile.She said, “There was a large generational divide in missing payments: older people were much less inclined to miss payments. Higher proportions of the older generations — Baby Boomers and Gen X, over three-quarters (77 per cent) — stated that they never missed payments, compared to less than a third of the respondents from the younger generations — Millennials and Gen Z. While 18 per cent of Gen Z responded that they sometimes missed their payments, only three per cent of Baby Boomers gave the same response.”The platforms represent a new wave of purchasing opportunity for users, by allowing consumers to buy goods — and increasingly services — without having to immediately reach for their wallet for either cash or credit. The other appeal is that consumers get their product immediately and then pay it off in installments — which is a key difference with the layby services of the past.These new financial services are also popular amongst Millennials, giving them an alternative to credit cards.In Australia, there are myriad platforms to choose from, with the two most popular being Afterpay and ZipPay. Others include Oxipay (now Humm), Certegy Ezi-Pay, BrightePay, and Openpay. The Risks Of BNPLAs popular and convenient BNPL services have become, regulators have concerns.In light of a Senate inquiry on the credit and financial sectors, ASIC released its first review of the buy now pay later sector in December last year. It found one in six users had either become overdrawn, delayed bill payments or borrowed additional money because of a buy now pay later arrangement. From the ASIC report, 44 per cent of BNPL users had an annual income less than $40,000, with 40 per cent of those describing themselves as students or in part-time work. Danielle Press, ASIC Commissioner, said the exponential growth in this industry and the risk this brings means the developing sector will remain an area of ongoing focus for the Commission. This is reflected in the new product intervention powers introduced by ASIC, allowing it to intervene and take temporary action where financial and credit products have resulted in, or are likely to result in, significant consumer detriment.Are They Creditors?There are mixed views on the impact of BNPL services on credit ratings. Unlike Afterpay, which taps into people’s existing credit facilities and does not do credit checks, ZipPay performs credit checks on applicants — but it does not list defaults on a customer’s credit files. However, that could change. A spokesperson for Zip said, “Zip is exploring Comprehensive Credit reporting. In a positive reporting environment, Zip believes that reporting repayment history would be a good thing for our customers.” Faith Brockhoff, Risk and Operations Manager at home loan specialist Tic:Toc said BNPL doesn’t have a negative impact on home loan applications — but this does depend on the circumstances and how often they’re used.“This generally means a lender won’t know you’ve used Afterpay unless you’ve done it recently and supplied copies of your bank statements. “Other services that do run credit checks will show on your credit file, so the lender will know straight away.” Brockhoff explained that most lenders add any payments someone owes to these schemes in their living expenses.“The only issue then is that if your living expenses are too high they might determine that you’re not able to afford the loan. It’s generally about how much you owe, not who you owe it to.” Which-50 spoke to 23-year-old Josie* who uses Afterpay and has a current balance of $674 to be paid within 60 days. She said she got rejected from ZipPay as she said she has “too many commitments” with her car loan.Zip told Which-50, “We perform more due diligence on new customers than any other credit provider in Australia, and have done since inception, running credit and identity checks for every single application to ensure Zip customers can comfortably afford their repayments. “As a result of the rigour of our checks, Zip declines a large number of applicants. Our market-leading underwriting processes are further demonstrated in our results, with one in one hundred Zip customers late in any month, compared to one in six for other BNPL providers, and one in six for credit cards.”Would Afterpay