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CBA finds BNPL customers worse with debt

Customers who use buy now, pay later products are more likely to fall behind on debt repayments and to be in financial hardship, the big four bank has reported.

CBA has provided the data in response to questions on notice from the House of Representatives standing committee on economics, after chief executive Matt Comyn was grilled on the matter.

An analysis of 2020/21 financial year data by the bank found when compared to customers with similar age distribution, customers who  used buy now, pay later (BNPL) products were one and a half to two times more likely to be in arrears and to overdraw their accounts.

According to CBA, 7.2 per cent of BNPL customers had overdrawn their transaction account, compared to 3.9 per cent of other customers.

Around 4.8 per cent of BNPL customers had fallen behind on their repayments, compared to 2.8 per cent of other customers.


Further, customers who used BNPL products were also more likely to be in financial hardship (6.4 per cent versus 4.9 per cent).

CBA launched its own BNPL product, StepPay, in August – but the bank has made it available to customers on the conditions they show evidence of regular income or deposits into a Commonwealth Bank account, can cover repayment instalments and they are subject to internal and external credit checks.

As at 25 October, nearly 95,000 applications had been approved for StepPay. CBA reported at this stage, late fees had not yet been applied to any customer accounts.

Speaking to the committee in September, Mr Comyn stated the bank had entered the space because it thought that it would be “perhaps the most expedient way for regulation to be introduced in that sector”.

He had previously suggested that BNPL providers should be held to similar regulatory standards as other lenders, despite the bank backing a number of players and launching its own product.

“From our perspective we see new entrants going into a market where there is a customer need. They’re responding to that, which is either not covered by the regulation today or wont be for the future. I think its not so much about arguing that all of those players should be regulated,” he told the committee on 23 September.

“Ultimately, we should be defined by our ability to deliver high-quality customer experiences, but we do definitely see adverse effects from customers who are overextending themselves in an entirely unregulated product in buy-now pay-later.”

Westpac similarly provided responses to questions on notice from the committee, where the bank stated it had seen ongoing rises in the number of customers using BNPL.

It had also noted credit assessments could be needed to prevent harm in the space, reporting that while it had noted many customers were using their BNPL products “sensibly”, others used the offerings to deal with hardship.

“From our customers who are approaching us for hardship assistance, we can observe that customers who find themselves in financial difficulty are sometimes resorting to BNPL facilities, often from multiple providers, to help them get by with their day to day expenses,” the Westpac response stated.

“This includes using BNPL for the purchase of groceries and clothing, gift cards, vet or other medical services, purchase of white goods/furniture and household services. In such situations, a credit assessment may have raised concerns about their ability to service further debts.”

Westpac CEO Peter King had told the committee in September “it’s not the individual provider but the aggregate impact of commitment that gets people into trouble”.

“The point is that they can apply for buy-now pay-later accounts, which I think are credit, and there’s a different process that is used for those particular accounts,” Mr King said.

“They’re not subject to some of the tests that the banks do when they lend credit. So it’s the aggregate impact of having multiple accounts.”

BNPL was ranked the fourth most common type of debt held by consumers in the March quarter, with NAB research showing it was held by nearly one in five Australians.

ASIC published findings one year ago showing 22 per cent of customers prioritised paying off their BNPL 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.

[Related: AUSTRAC unveils guide addressing tech-based abuse]

CBA finds BNPL customers worse with debt

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