According to the Australian Securities and Investments Commission, one in five Aussies using Buy Now Pay Later services are missing payments, with revenue from these missed payments topping $43 million during the 2018-19 financial year.
ASIC also found that some users may be paying inflated prices for goods and services through Buy Now Pay Later, and may be cutting back on essentials, such as meals, or taking out additional loans in order to make their payments on time.
And, according to ASIC, the BNPL industry has only grown throughout Covid-19, with users up 25 per cent and total value of transactions up 43 per cent to $824 million in June 2020 compared to the same month a year prior.
“While most buy now pay later arrangements are marketed as a budgeting tool or a way to make purchases more affordable, some consumers are missing payments and incurring fees as a result,” the report reads.
“From our research we also found that some consumers who use buy now pay later arrangements are experiencing financial hardships…. in order to make payments.”
Most of these consumers were young, aged between 18 to 29, and had signed up to at least two different BNPL arrangements in the last six months.
Some of these consumers said they took on an additional loan (15 per cent) in order to make their buy now pay later payments, while of those who opted instead of use credit cards were more likely to incur interest charges on these cards.
However, the government body noted that the BNPL industry is currently working on an industry code of conduct, and encouraged major players to develop target solutions in response to the financial harms it most commonly causes.
Specifically, it noted that more providers should institute caps on missed or late payment fees, and prevent further purchases until these late payment fees have been made.
“A robust code that is outcomes focused, accommodates the different business models in the industry (including emerging models, where possible), and has strong review and compliance mechanisms can help promote good consumer outcomes in line with community expectations,” the report recommended.