Buy now pay later dependency a growing concern for young Aussies

Buy now pay later dependency a growing concern for young Aussies

The buy now pay later industry draws young people in with trendy, easy to use products. But how well is the sector held accountable for its customers’ financial wellbeing? (Image source: Pixabay)

By Helen Karakulak | @helen_karakulak

The buy now pay later (BNPL) industry in Australia is one that has attracted attention for being self-regulated, relying on a voluntary code of conduct and evading government intervention. 

Australia has been identified as an example of what not to do when it comes to the booming sector, with a joint submission by Financial Counselling Australia and Australia’s Consumer Action Law Centre urging the UK government to legislate consumer protection in the BNPL space.

As part of a consultation process on BNPL regulation for the UK Treasury, these organisations pointed to data from the Australian Securities and Investments Commission’s 2020 industry update report.

The report found approximately 1.2 million BNPL users had missed a payment in the last 12 months, and one in five people had gone without essential items, such as food, to make a payment towards their BNPL account.

Of the consumers that missed their payments, 46 per cent were aged between 18 and 29 years old.

This is in line with recent findings from Financial Counselling Australia, which in December 2021 found 61 per cent of financial counsellors surveyed said most or all of their clients with BNPL debt struggle to pay other living expenses.

Financial Counselling Australia has been calling for the BNPL sector to be regulated by the Australian Federal Government like other credit products, and want people to be aware that BNPL is a form of credit. 

The University of South Australia Student Association (USASA) recently published Leveraged – a podcast series for young people navigating their finances online, with the first episode exploring BNPL in depth.

The episode titled “Buy now pay later dressing up debt” features a variety of guests speaking to these concerns.

While BNPL products do not charge interest like a traditional credit card, if you miss one of your fortnightly repayments, you’re charged a late fee. 

Financial counsellor Chanelle McAuliffe says she sees late fees and overspending through BNPL accounts affecting many of her young clients.

“I see clients’ bank statements in which there are pages upon pages of Afterpay transactions, and particularly for survival purposes in terms of paying for utilities,” she says.

“I’m seeing a pattern of dependency on the platform, which is resulting in people not being able to find financial resilience and instead they are stuck in a buy now pay later cycle.”

South Australian MP Rebekha Sharkie, who has been calling for the federal government to regulate the growing industry since 2020, also shared her concerns with the podcast.

“I think that we need to be far tighter and faster on this, particularly given who the client group is and really what is very much unabashed marketing towards young people who are vulnerable consumers,” Ms Sharkie says.

“They [young people] more tend to be casual work[ers], lower pay, and I think that there needs to be far more protection for young people and really for everyone who is using this service.”

UniSA student Ally Bull’s BNPL provider of choice is Afterpay. While she finds it appealing as a casual worker, she recognises it can fuel extra spending.

“I like outfit repeating; I’m a big advocate. But sometimes you want to buy a couple of new dresses or you see some clothes you really like for an event, and you think, ‘oh I’ll just put it on Afterpay’,” she says.

“Especially working casual jobs, you might get three shifts a week, you might get five, you might get one. So it is always handy to have that option … if you want to buy something you can put it on Afterpay.

“Suddenly you’ve [bought] three dresses, pairs of shoes and makeup for the event too, and it becomes a dangerous cycle.”

Some BNPL providers in Australia have opted into a voluntary code of conduct designed to reduce some of these public concerns around late fees and excessive spending.

Under the code, late fees are capped, late fee limits must be disclosed, and any late-payment surcharges imposed without first notifying customers are waived, among other precautions.

Ms Sharkie says the code of conduct is insufficient, and the extreme growth of the sector deserves more scrutiny in parliament. 

“Anything that has a voluntary code of conduct really is based on the organisation to put in some clear parameters and there’s no requirement for them to do it.”

“It has become a really messy system and then it can impact on your credit rating if you are late on fees or if you dishonour the contract that you have.

“Talk to any financial counsellor helping somebody manage those debts, particularly on a low income while trying to cover their other payments, it really does become a slippery slope.”

Afterpay specifically was a big advocate for the industry’s current code of conduct. Their Executive Vice President of New Platforms Lee Hatton says Afterpay focuses on their consumers and consequence.

“We have always welcomed regulation, so long as it is fit for purpose,” Ms Hatton says.

“[The code] has been key for us and [it] is about lifting the standards across the industry because so many new competitors have come in over time.”

Ms Hatton says, when it comes to financial regulation, it is critical to be educated rather than make assumptions, and Afterpay is happy to cooperate with the government in this sense.

“I think that is what the MPs and alike have been pretty good at – actually having a more thorough conversation with us rather than making blanket choices,” she says.

“There is a little bit of a two-sided debate on it, right? If you regulate everything, you can avoid innovation. That would be a real shame.

“The most important thing is that it [regulation] is really balanced with what is fit for purpose and always being open and curious to the conversation about why regulate.”

UniSA student Jordan White says it’s important for young people to think about how the products you use to spend your money are regulated to protect you.

“We just had the Royal Commission [into misconduct in the banking, superannuation and financial services industry] that found all this stuff, and that is because it took so long to implement some regulation,” he says.

“We might see the same [outcomes] with Afterpay and different buy now pay later services perhaps if the government does not keep up with this technology.”

Leveraged, a podcast from USASA, explores the debate between regulation and innovation in finance across three episodes.

Hosted by Helen Karakulak, the podcast explores BNPL, digital investing and the rise of the “finfluencer”. It is available for listening now on Apple Podcasts and Spotify.

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