Buy now, pay later the new mantra for younger generations

Monday, 7 October 2019

Buy now, pay later is increasingly popular, but can cause issues for those that don't keep up with repayments.

Bella Day has got into the habit of buying shoes, clothes and make-up - paying just a fraction of the cost upfront.

The rest she pays off via Laybuy, a part-payment scheme that spreads the cost of purchases over six weeks.

Day, 18, fits squarely in the demographic targeted by the growing number of buy-now-pay-later operators in the New Zealand market.

More than 228,000 New Zealanders are now signed up to one of the many options available here and 61 per cent of the users are female under the age of 45, according to the 2019 NZ Post eCommerce review.

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Bella Day is a fan of Laybuy, allowing her to get things immediately but pay off over time.

Day said she has only been using buy-now-pay-later for a few months.

'I like that I can pay things off but get the items straight away,' Day said.

The newly trained hairdresser said she worried about being caught by late payments but with a full-time job, she felt comfortable that she could keep up.

She knew of at least one person who struggled with debt and moved between the different companies when she fell behind in payments.

While the rules of each operator differ, the essentials are the same.

Customers apply and pay a first instalment for items that cost between $50 and $1500. Customers then pay the rest by weekly or fortnightly instalments. Most companies offer the service interest-free to shoppers, as long as repayments are made as scheduled.

But all of the companies charge late fees and penalties for missed payments.

Laybuy, originally from New Zealand, has set up its new headquarters in the United Kingdom.

Getting behind on payments can also negatively impact a person's credit rating, making it more difficult to get loans in future.

Senior lecturer of finance at Auckland University of Technology Ayesha Scott said buy-now-pay-later schemes needed to be considered a form of consumer credit.

'It's appealing to a younger demographic in a way that perhaps credit cards don't appeal to them,' Scott said.

'I do feel it has the potential to be another place where people fall down. If they are prone to over-spending this perhaps makes it easier for them by delaying the pain point of spending money.'

Afterpay, one of the largest, collected A$41.6 million (NZ$44.57m) in late fees in its most recent financial year from its 4.6 million active customers across New Zealand, Australia and the United States.

The income from penalties were 18.7 per cent of the company's overall income, down from 24 per cent in 2018.

AUT's finance lecturer Ayesha Scott says millennials should understand the power of compounding.

An Afterpay spokeswoman said the company had in-built customer protections so that users couldn't get into debt.

'Around 95 per cent of Afterpay payments never occur a late fee, which means payments are made on time and the service is completely free for the user. If you're late on a payment we suspend your account and you cannot continue to purchase until you're up to date,' the spokeswoman said.

Regardless of potential fees, buy-now-pay-later was not necessarily bad, Scott said.

'When it comes to these buy-now-pay-later schemes, I think they can be used in a very constructive way and they can be used in a very destructive way. It's about making sure the messaging around these sorts of technologies is very clear so that people aren't using it to get into trouble.'

Rather than controling the schemes with new legislation, New Zealanders needed to become more comfortable with talking about money, Scott said.

'In New Zealand we don't talk about money nearly enough,' she said.

'Until we can shift some of the societal norms and myths around money, it is going to be tough to message these products appropriately.'

Laybuy, a Kiwi owned operation, has designs on the global stage.

Founder Gary Rohloff is currently based in the United Kingdom at Laybuy's new headquarters.

A survey conducted by the company found 66 per cent of the 1633 customers asked thought buy-now-pay-later was a better way to manage money than a credit card.

Gary Rohloff co-founded Laybuy with his son, Alex. The company has moved its headquarters to the United Kingdom, with plans to expand.

Rohloff said companies like Laybuy made income from retailers, as long as customers kept up with their repayments.

'We wanted to make sure there was never the opportunity for people to get stuck into an unsustainable debt spiral,' he said.

'If someone can't pay us, we suspend their account. They can't keep spending like you can with a credit card.'

Laybuy independently conducted a credit check on all customers, Rohloff said.

'It's not about this must have now economy that a lot of people talk about. It's just as much about families looking to budget better,' he said.

The schemes are encountering some regulatory scrutiny. The Australian Consumer Competition Commission is mulling an inquiry into banks but has reportedly put Afterpay on its list to investigate, too.