Buy now, pay later, or BNPL in short, is a new type of payment method that has emerged in recent years – and it is expanding fast, with its market in Australia being expected to grow at a rate of 12.1% on an annual basis.
The reasons for this are obvious, as the growth of many Australian BNPL services has been precisely due to the greater flexibility in payment methods that many consumers and shoppers are seeking when purchasing their goods and/or services.
Beyond just flexibility and other reasons, such as affordability or just instant gratification, there are a trove of reasons why Australians are switching to BNPL. But let’s go into a bit more detail as to what exactly BNPL is, as well as some of the considerations you should take into mind if you might want to make the switch.
So, What is BNPL?
As per its name, the BNPL payment method is essentially like a short-term loan that allows you to pay for a product or service in a set of fixed instalments over a period of time, rather than the usual full upfront payment; the payment period for a BNPL usually spans over a few weeks. BNPLs are almost always interest-free and do not carry additional fees, though they are a form of credit and do have an influence on your credit score. Usually, they are most commonly first paid with a small initial payment, with the rest in the form of four equal interest-free instalments.
Some common BNPL services in Australia you might have heard of, whether through advertisements or recommendations, include Afterpay, Zip, Openpay, Humm, Klarna, and many more.
Of course, any late payments would incur late fees for the user or if there is no money in the nominated account, and this can, again, negatively impact your credit score. Many shops and services today offer BNPL options for customers, and some BNPL systems may also be offered directly through credit card networks such as Mastercard and Visa.
Why Do People Choose BNPL?
We have already mentioned before some of the reasons why people choose BNPL over traditional payment methods, such as flexibility, affordability and instant gratification – but there are also some other reasons why people choose it, even for the most basic and fundamental things, such as paying for groceries.
No Interest
Of course, the most attractive thing about BNPL has been its interest-free system, which means they are far cheaper than balances such as those on a credit card. As mentioned before, BNPLs are like a short-term interest-free loan with no additional charges, which therefore means easier and greater flexibility in one’s balance of payments. This can cultivate a sense of greater transparency as well as control over spending and contractual payment terms for consumers.
Spreading Costs and Budgeting
BNPL can be particularly useful for those on a tight budget but are making big purchases, and where, therefore, making conscientious budgeting decisions is crucial. For expensive products like electronics, furniture, or services such as renovations, as opposed to a hefty upfront payment, you can instead break it into manageable instalments under the BNPL method. Therefore, many budget-conscious consumers already have a clear idea of how much they will pay each week/month through interest-free instalments, which then allows for greater flexibility in budgeting.
Distrust of Credit Cards
Particularly for Gen Z Australians, many of them have chosen to turn away from credit cards for BNPL, which has contributed to its astronomical expansion in the market. Gen Z has a distaste for accruing interest due to their current buying powers, along with a wariness of hidden fees; moreover, many also have a lack of understanding of the admittedly complex jargon and processes associated with credit cards. Naturally, BNLP has been seen as a viable alternative for Gen Z Australians, contributing to a significant broader shift in payment methods in the country.
Things to Consider for BNPL
While BNPL may sound like a very attractive payment method for shifting needs and consumer habits in Australia, there are quite a number of things to consider when making the change.
Late Payments and The Debt Trap
To be in a debt trap means borrowing money even to pay back a previous loan of money. It should be remembered that the BNPL is the equivalent of a small loan and is still essentially a form of debt that needs to be paid back. While having one or two late payments can be understandable, if you are constantly late on payments, this can build over time and be problematic: every time you use the service, it adds to your overall debt. One can very easily land themselves in a debt trap cycle if there is no money to pay the next instalment, and quickly spiral out of control.
Overspending
Having interest-free instalments may sound good, but there is a risk of building negative habits of making large purchases seem more affordable than they really are, which can ultimately lead to breaking your bank. Overspending is listed as a key element to certain regrets with switching over to BNPL, and this can lead to not just debt but also defaulted payments and lower credit scores. Therefore, it is fundamental to have a degree of conscious spending when using BNPL, regardless of how flexible the method might initially seem. BNPLs do not make products or services more affordable; they just spread out how long you might have to pay them.
Returns and Refunds
Finally, given how BNPL services spread a payment amount over a period of time, it may be difficult to smoothly cancel the payment made or issue a refund in the case of making a return. While there is an essential degree of high transparency and flexibility if a successful case is made either of these circumstances under the BNPL system, you may still have to make continued payments before the return is processed and finalised; and in both in-person and online shopping, returns and refunds will be much dependent on the terms and conditions of the provider and how that refund would be processed.
