The rise of ‘buy now, receive now, pay later’ services

Change is inevitable, and is more often than not associated with progress. However, this is not to say change, especially regarding technological advancements, is always beneficial to our professional and personal lives.

This is something we briefly discussed in our article, ‘Consumer payments behaviour: How do you compare?’. Namely, technological advancements, and the potential for them to influence consumers; for better or worse.

‘Buy now, receive now, pay later’ services

As we edge closer to the festive season, there is something of note; the rise in the uptake by consumers of ‘buy now, receive now, pay later’ services offered by providers (e.g. Afterpay, Zip and Humm).

These services allow consumers to buy and receive goods or services immediately, but pay for the purchase over time. Below is brief and general outline of how these services work when they are made available as a payment method by a merchant, and taken up by a consumer when buying goods or services:

1. The consumer buys and receives goods or services from the merchant, either in-store or online.
   1. A contract exists between the consumer and the merchant for the purchase.
   2. The goods and services can range from one-off high-value purchases (e.g. solar power products, health services, travel, and electronics) to everyday low-value purchases (e.g. groceries).

2. The merchant is paid upfront by the provider for the purchase.
   1. A contract exists between the merchant and the provider for the purchase.
   2. The merchant is charged merchant fees by the provider, which is generally deducted from the upfront payment.

3. The provider is repaid over time by the consumer for the purchase.
   1. A contract exists between the provider and the consumer for the purchase.
   2. The consumer is generally not charged interest by the provider. However, the consumer can be charged establishment, account-keeping and/or missed payment fees by the provider.

As you can see, these services are different to other payment methods (e.g. cash, debit cards, and credit cards) that consumers may have available to them when buying goods and services.

The Australian Securities and Investment Commission (ASIC) recently published their review* of these services. Below is a selection of several of their findings, especially as they relate to consumers.

Number of consumers

The estimated number of active consumers (i.e. consumers that have used these services) rose from 400,000 (2015-16) to 2 million (2017-18).

Transaction volume and value

• The monthly volume of transactions rose from 51,000 (April 2016) to 1.9 million (June 2018).
• The monthly value of all transactions rose from $56 million (April 2016) to $346 million (June 2018).
• The monthly average transaction value fell from $1,098 (April 2016) to $178 (June 2018).

Revenue and missed payment fees

• The total revenue earned by the providers reviewed rose from $32 million (quarter ending 30 June 2016) to $78 million (quarter ending 30 June 2018).
  • And, the percentage of total revenue from missed payment fees earned by the providers reviewed rose from 2% (quarter ending 30 June 2016) to 12% (quarter ending 30 June 2018).
    • And, the percentage of transactions that incurred a missed payment fee remained between 8% and 14% over this time.

Consumer demographics and spending behaviour

• 65% of active consumers are employed full time or part time.
• 86% of active consumers plan on using these services again in the future.
• 47% of active consumers have an annual income equal to or greater than $40,000.
  • 44% (<$40,000),
  • 39% ($40,000-$100,000), and
  • 8% (>$100,000).
• 81% of active consumers are aged 18-44 years.
  • 26% (18-24 years),
  • 35% (25-34 years),
  • 20% (35-44 years),
  • 12% (45-54 years),
  • 4% (55-64 years), and
  • 1% (65+ years).
• 55% of active consumers spend more.
  • 15% (spend much more),
  • 40% (spend a bit more),
  • 38% (spend about the same), and
  • 7% (spend less).

Consumer repayment methods and negative financial impacts

• 74% of active consumers make their scheduled repayments via a debit card (or debit card from a transaction account) payment method.
  • 74% (debit card/transaction account),
  • 24% (credit card),
  • 15% (PayPal),
  • 7% (BPay), and
  • 3% (pre-paid card).
• 22% of active consumers have a negative financial impact when they make a scheduled repayment.
  • 8% (become overdrawn),
  • 7% (delay paying other bills),
  • 5% (borrow money from family and/or friends),
  • 2% (get a loan), and
  • 2% (get a cash advance on their credit card).

Moving forward

When it comes to your personal finances, and making informed financial decisions, it’s important to keep true to your personal circumstances – your financial situation, goals and objectives.

In terms of your ongoing money management and the spending of money on goods and services, this applies to not only one-off high-value purchases, but also everyday low-value purchases – not only in isolation, but also in combination with each other.

As you have seen, technological advancements in consumer payment methods can sometimes be unhelpful in this regard. In a nutshell, without proper caution and awareness, they have the potential to negatively influence our spending behaviour, which for some may lead to a further exacerbation of an already underlying problem.

With the festive season just around the corner, it may be worthwhile to keep in mind the following with regards to consumers that use a ‘buy now, receive now, pay later’ service:

• 55% of consumers spend more, and of this percentage, 15% spend much more, and
• 22% of consumers report a negative financial impact when making a scheduled repayment.

And, despite the two points above: 86% of consumers plan on doing it all over again at some point in the future.

If you have any questions regarding this article, please do not hesitate to contact us.

*ASIC. (2018). Report 600: Review of buy now pay later arrangements.