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Is BNPL the End of Credit Card Use?

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By Published On: October 16, 20190 Comments

Australia was once a country that relied heavily on the use of credit cards. But now, with the introduction of BNPL and other scheduled payment platforms, is this the end of the plastic craze?

In the last twelve months, BNPL platforms including Afterpay, Zip and Openpay have dominated the industry, but now, competing brands like humm and Payright have come into the equation. 

According to a new survey by Mozo, nearly half of all users of BNPL have stopped using credit cards. While credit cards are in no way ending their run, they’re definitely on their way to becoming a less immediate need for consumers across the country. 

“Buy Now Pay Later has changed the face of the way we pay for goods with more than 25 per cent of users cancelling their credit card and a further 23 per cent saying they no longer use it,” explains Kirsty Lamont, the Director of Mozo. “The ease and convenience of opting for bite-size scheduled payments has certainly taken Australia by storm, but the pitfall is that it’s incredibly easy to bite off more than you can chew, and miss a payment.”

Is BNPL the New Credit Card?

Users of credit cards can make purchases on anything from a pair of Monolo Blahniks to a down payment on a holiday. While it’s not quite the same, platforms like Afterpay and Openpay offer a similar premise. Those slightly above average purchases like a pair of expensive shoes or a trip abroad can easily get split into scheduled timeslots. So, is there really a difference between the two?

According to ASIC, in 2018, there were an estimated two million users of BNPL options, and as of June 2018, the owing payments from all of these users equated to $903 million, with predictions that it will hit $1 billion by the end of 2019.

Just like credit cards, it’s not uncommon for users to miss a payment or two, which can dramatically impact their credit score. According to the Power Retail Spotlight Series Report: BNPL 2019, 19 per cent of users have missed at least one payment of the BNPL schedule.

“Over two-thirds of the sample (68 per cent) stated that they never miss their buy now pay later repayments, and therefore, did not incur any additional fees. Just over a quarter of the sample (28 per cent) responded that they rarely or sometimes missed their BNPL payments. Only four per cent of respondents stated that they usually or always miss their scheduled repayments,” says Uwana Evers, the data scientist at Pureprofile.

“There was a large generational divide in missing payments: older people were much less inclined to miss payments. Higher proportions of the older generations — Baby Boomers and Gen X, over three-quarters (77 per cent) — stated that they never missed payments, compared to less than a third of the respondents from the younger generations — Millennials and Gen Z. While 18 per cent of Gen Z responded that they sometimes missed their payments, only three per cent of Baby Boomers gave the same response.”

Why Do Aussies Love BNPL?

Australians embraced BNPL in an instant, hence the influx of competing companies in the sector. According to the study by Mozo, 84 per cent of BNPL customers prefer to use the likes of Afterpay, with 31.5 per cent relying on Zip. From 2018 to 2019, the use of BNPL rose from 14 per cent to 27 per cent for average purchases. “With in app purchases increasing so sharply, it’s important for users to take a moment to think about their spending habits. Are you shopping on your BNPL app for something you really want, or are you browsing and buying out of boredom, habit or convenience?” explains Ms Lamont from Mozo.

The most popular category that customers use BNPL for is clothing, with 31.79 per cent of users sticking to apparel for their scheduled payments. OIn second and third place included appliances and home and entertainment, with 19.5 per cent and 13.2 per cent uses, respectively.

What About Regulation?

Credit cards are heavily regulated, due to their affiliation with the big banks. If a bank knocks back your credit application, it’s due to a number of factors. However, this isn’t the case with BNPL – a lack of heavy regulation can damage a user’s credit score and the chance of receiving a loan in the future without them realising it.

“Consumers should be aware that many merchants currently charge a surcharge for using credit cards. There is the potential for the eventual introduction of a similar surcharge for using [BNPL] systems, as the merchant is currently wearing the cost of this service,” explained Canstar in a study.

According to the Australian Financial Complaints Association, there have been 250 complaints from January to July 2019, some of which relate to unauthorised transactions, negative feedback on credit scores and incorrect fees.

With this mind, many BNPL platforms like Zip have openly expressed an interest in regulation. “Zip looks forward to continued engagement with government and ASIC on any new legislation,” the company said in a statement earlier in 2019.

“We still see strong consumer demand for the payment option and this actually drives high sales. We would be concerned if the payment method became difficult to use at checkout,” explains Nathan Huppatz, the CEO of costumesdirect.com.au. “I think it can only be positive that some sort of improved regulation be implemented for the BNPL sector.”

The future of BNPL is bright, but the regulation of the sector is necessary. In order to compete with credit cards, and as more companies pop up, the likes of Afterpay, Zip and their competition need to consider the Aussie customer before pushing things too far.

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