Australian regulator investigates ‘Buy-Now-Pay-Later ’industry, finding $903 million in overdue payments

After a senate inquiry announcement putting the industry in the spotlight, ASIC has now released its first investigation into the buy-now-pay-later industry, revealing significant increases in consumer use over the past three years.

Consumers use has increased 400,000 to 2 million from 2015, and analysts say that number is set to keep growing.

ASIC's investigations found that transactions have also increased from 50,000 to 1.9 million since 2016, with outstanding buy now pay later balances of $902million in June 2018.

ASIC Commissioner Danielle Press said the review found potential risks for consumers who plan to continue using these services.

'The typical buy now pay later consumer is young with 60% of buy now pay later users aged between 18 to 34 years old. We found that buy now pay later arrangements can cause some consumers to become financially overcommitted and liable to paying late fees.' Ms Press said.

ASIC Investigation findings

ASIC investigated six providers, four of which are part of larger ASX-listed companies.

The buy now pay later arrangements reviewed were: Afterpay, zipPay, Certegy Ezi-Pay, Oxipay, BrightePay and Openpay. The findings showed alarming results:

• ASIC has found 1 in 6 users had overdrawn or delayed bill payments and needed to borrow additional money to pay their debt.
• It found that most users believed that the buy now pay later service would allow them the opportunity to buy more expensive items that they would otherwise not be able to afford, therefore continuing on-going use of the services.
• ASIC also found that some providers used behavioral techniques to influence consumers to make a purchases without careful consideration of the costs.

‘The exponential growth in this industry, along with the risks we have identified, means this will remain an area of ongoing focus for ASIC.

One area we will be targeting is where consumers are paying more than they need to for using a buy now pay later arrangement’, said Ms Press.

How Buy-Now-Pay-Later works

Many mistake pay later services for Lay-by or Lay-Way – where consumers buy a product or service over a set number of days and when payment is complete, are able to take the product home.

Buy now pay later arrangements are more flexible, they allow consumers to delay payment for purchases while obtaining the goods immediately.

While they’re not generally charged interest, some services take a fee, and in some cases account-keeping fees. Users will be charged fees if payments are missed, very-similar to charges on missed credit card payments.

ASIC said many of the arrangements are not regulated under the National Credit Act making the providers exempt and not required to be licensed or to comply with the responsible lending laws.

These laws prohibit a lender from providing credit that would be 'unsuitable' for the consumer, and puts consumers at risk.

After its initial review, ASIC has said it will continue its investigation to better regulate the services.