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Generation Now drives buy-now-pay-later schemes

Monday, 17 December 2018

There are now a number of operators in New Zealand offering shoppers the option to purchase something and spread the payments, interest-free, over a number of weeks.
There are now a number of operators in New Zealand offering shoppers the option to purchase something and spread the payments, interest-free, over a number of weeks.

Buy-now-pay-later platforms are putting pressure on traditional finance companies, a new report suggests.

There are now a number of operators in New Zealand offering shoppers the option to purchase something and spread the payments, interest-free, over a number of weeks.

Afterpay, PartPay and Laybuy are some of the most prominent.

Non-bank institutions, including finance companies, credit unions and building societies, reported profit of $232.61 million this year, up 23 per cent, KPMG's latest survey of the sector shows.

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John Kensington said the non-bank sector reported concern that those buy-now-pay-later schemes were operating outside responsible lending rules.
John Kensington said the non-bank sector reported concern that those buy-now-pay-later schemes were operating outside responsible lending rules.

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Their lending increased 14.2 per cent. 

KPMG head of banking and finance John Kensington said both finance companies and traditional banks had referred to the growth of the part-payment schemes.

While they were not a huge part of the market by value, he said, they were having an impact.

Lenders noted that 'their' customers were going to shops and, instead of buying up to the amount they could afford in cash, they could double or treble that by spreading the payments.

Borrowers with a number of part-payment facilities set up would find their ability to borrow traditional loans from finance companies or other lenders was limited.

Kensington said the non-bank sector reported concern that those buy-now-pay-later schemes were operating outside responsible lending rules. Most lenders have to meet requirements such as not lending more than a borrower can afford to repay. Part-payment providers don't have that obligation.

'[Part-payment operators] earn a significant proportion of their income from late fees, how can that be responsible lending… if a finance company was doing that, it would be in the paper, there would be a crackdown on it,' Kensington said.

Kensington said a number of non-bank lenders said part-payment platforms had quickly become their major competitors.

As the platforms grew bigger there was more potential for disruption in the market, he said.

Kensington said it was a reflection of younger people wanting instant gratification.

'When I was 15, I couldn't wait to get my licence. At 17 I couldn't wait to buy a car. Now it's all about not saving up but using your money on Uber, Lime, PartPay… you can get the experience you want and don't have to have the money.'

John O'Sullivan, chief executive of PartPay, said schemes such as his were a different proposition to finance companies.

The late fees were usually capped and the amounts borrowed were small. He said the average transaction size for PartPay was $160.

Commerce Minister Kris Faafoi said the schemes were looked at as part of the recent review of the Credit Contracts and Consumer Finance Act but no evidence had been found yet of serious harm.