ASIC spotlights the buy now pay later industry
ASIC has released its first review of the rapidly growing buy now pay later industry.
Buy now pay later arrangements allow consumers to defer payment for purchases from participating merchants and obtain the goods and services immediately. The buy now pay later arrangements ASIC reviewed were: Afterpay, zipPay, Certegy Ezi-Pay, Oxipay, BrightePay and Openpay.
Under the arrangement, consumers are generally not charged interest. However, some arrangements have an establishment fee and account-keeping fees. Consumers may also be charged a fee if they miss a payment.
Buy now pay later arrangements are available from a range of merchants. For example, these arrangements could be used to finance high-value purchases such as solar power products, health services, travel, and electronics.
Buy now pay later arrangements are also available for everyday purchases from retailers such as Big W, Target, Harris Scarfe and Kmart.
While some buy now pay later providers offer fixed term contracts up to 56 days for amounts up to $2,000, other providers offer a line of credit for amounts up to $30,000.
ASIC found that the number of consumers who have used buy now pay later has increased five-fold from 400,000 to 2 million over the financial years 2015-2016 to 2017-2018. The number of transactions has increased from about 50,000 during the month of April 2016 to 1.9 million in June 2018. At 30 June 2018, there was $903m in outstanding buy now pay later balances.
ASIC Commissioner Danielle Press said 'Although our review found many consumers enjoy using buy now pay later arrangements and plan to continue using them, there are some potential risks for consumers in using these products.
'We found that buy now pay later arrangements can cause some consumers to become financially overcommitted and liable to paying late fees.'
One in six users had either become overdrawn, delayed bill payments or borrowed additional money because of a buy now pay later arrangement. Most consumers believe that these arrangements allow them to buy more expensive items than they would otherwise and spend more than they normally would.
Providers also use behavioural techniques which can influence consumers to make a purchase without careful consideration of the costs.
ASIC’s MoneySmart website explains how buy now pay later services work and how consumers can avoid getting into financial trouble when using them.
28 November 2018.