BNPL use rises, as missed repayments surge

A survey of 1,000 Australians aged 24 to 44 conducted by buy now, pay later (BNPL) operator Openpay has showed that more than half of respondents have used or have considered using BNPL services to independently manage their money, instead of borrowing from their family or friends.

But there are older Australians who may prefer to lend their family their cash, with half of the respondents reporting their parents or older relatives are cautious of BNPL.

Around 28 per cent believed the older generation do see the benefits of BNPL, but worry about users spending beyond their means.

Meanwhile, another survey from credit marketplace ClearScore has revealed that over the last eight months, the number of consumers running up multiple (three or more) BNPL debts has jumped to 30 per cent of users, while the proportion who have missed repayments has blown out by 83 per cent.

ClearScore Australia managing director Steve Smyth warned that some consumers may unwittingly ruin their credit scores, by snowballing repayments that will attract steep fees relative to the amount borrowed. If the debts are sold on to collection agencies, they will show up as multiple defaults, despite being small amounts, he said.

He also noted that responsible lending obligations and other regulations are comparatively tight for other mainstream credit products, including credit cards, car loans and mortgages.

“The data we have collected shows this is an industry flying blind,” Mr Symth said.

“The real issue is that regulators have over-regulated responsible lending and reduced competition in credit for lower-income customers. This removes affordable credit options, so the only option for many consumers is to take out multiple BNPL accounts, without adequately checking affordability.

“This is building up to be a train wreck for vulnerable customers, and the question for regulators is whether they will prevent substantial consumer detriment – or are they just going to intervene after the real harm is done?”

Openpay chief executive Michael Eidel commented that credit risk assessments for customers are “vital”, with each plan provided needing to be suitable for individuals and their needs.

“I’m a firm believer that the onus is squarely on us as an industry to make sure every customer is fully aware how BNPL works and what terms they are agreeing to,” Mr Eidel said.

“Being completely transparent on the fees and repayments dates from the get-go is so important – if people have all the information upfront, it can really help them feel in control and confident in using this as a money management tool.”

CBA chief executive Matt Comyn has previously suggested the BNPL market should be held to similar regulatory standards as other lenders, despite the bank backing a number of players in the space and launching its own product.

Despite only a quarter of Millennials indicating their parents are pro-BNPL, Openpay has recorded a rise in Baby Boomers and Gen X turning to the product, up by 33 per cent from the start of 2020.

The provider believes more individuals are looking to alternative finances, as recent RBA data has showed a 10 per cent drop in credit card use over the past 12 months.

A NAB report showed BNPL became the fourth most common type of debt held by consumers in the March quarter, held by 18 per cent of Australians. However, credit cards remained the most common credit product, held by 41 per cent of consumers.

ASIC also published findings in November that 22 per cent of BNPL customers prioritised paying off this debt over loan repayments or bills.

The regulator had discovered that 21 per cent of BNPL users had missed a payment in the prior 12 months and 5 per cent had missed mortgage repayments in order to pay off their BNPL debt.

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