Buy Now Pay Later services are growing at a rapid pace. Photo/Getty Images
The popularity of buy-it-now, pay-later services is growing at a phenomenal rate as sign-up rates for businesses and customers skyrocket.
Retailers say services were expensive and companies absorbed the costs – which could
drive up prices for consumers, but Afterpay said merchant fees reflect the benefits of partnering with them.
Afterpay and Zip, two of the biggest players in New Zealand, have reported year-on-year increases and say their services are fairer and more transparent alternatives to credit cards.
He estimated that Kiwis spent $1.7 billion on buy it now and pay later (BNPL) last year.
The Department for Business, Innovation and Jobs said data suggested it was rapidly becoming an established form of credit in New Zealand.
Datamine records from 2019 to 2020 showed that BNPL’s online transactions increased by 57%.
The number of active consumers has doubled in the past two years, with a 20% increase in 2021.
Tauranga Business Chamber managing director Matt Cowley said pay-later programs are great for customers who know how they work.
”They help customers meet their instant gratification needs. Pay-after systems help businesses by recouping sales that would otherwise have been abandoned by people who didn’t have cash on them.”
People had purchased items using various forms of credit and IOUs and although the methods had changed, the principle had not changed.
There would still be a need for small immediate credit facilities, he said, but BNPL’s business charges could be more expensive than credit card payments.
Cowley hoped the government’s new regulations on fees charged to businesses by merchants would cover all types of micro-finance, including pay later schemes.
Retail NZ chief executive Greg Harford said BNPL services were the fastest growing payment method in New Zealand and retailers were seeing a shift from card payments to BNPL systems.
”There is strong consumer demand for BNPL from people who want access to credit but don’t want a credit card. This means that retail companies increasingly need to offer BNPL to be competitive.”
He said that from a retailer’s perspective, the big problem with BNPL was the costs which were more than three times the average for credit card transactions.
”These costs make doing business more expensive and ultimately help drive up prices for consumers. Retail NZ would like to see BNPL systems integrated under the new retail payments regulatory regime, but the government has yet to act on this. ”
An Afterpay spokeswoman said the past few years have been difficult for business owners, but Afterpay has helped some weather the storm.
”Afterpay has changed the way people shop by giving customers the tools to access the
things they need and want, while allowing them to maintain their financial well-being and
About 90% of Afterpay’s revenue came from merchants rather than customers.
”Clients are never trapped in revolving debt and never incur interest. We are focused on supporting our community of buyers.”
It couldn’t disclose region-specific data, but as of March it had 144,000 merchants globally and about 20 million customers.
Afterpay used to charge a merchant fee of around 4-6%. Benefits of partnering with her included access to a new budget-focused customer base, reduced risk of fraud, more sales, dedicated marketing campaigns and a global store directory, she said.
A Zip spokesperson said it had around 42,200 merchants in Australia and New Zealand, a 22% year-over-year increase.
Its customer base in the two countries was 3.2 million, a 14% year-on-year increase, while total transaction volume for ANZ, as recorded in its fourth quarter results, was 956.7 million. of dollars.
She said BNPL was a better, fairer and more transparent alternative to a credit card.
”With rising inflation and cost of living pressures, the ability to manage credit responsibly is more important than ever.’
”BNPL products like Zip Pay are interest-free with flexible repayment schedules, and customers have access to great offers, sales and cash back.”
The top categories customers were shopping in were Electronics & Appliances, Home Goods/Furniture, Clothing & Apparel, Car/Vehicle Expenses, and Health/Beauty Items.
Customers with late repayments would have their accounts frozen and default charges were capped at $40 and not escalate, meaning the debt could not ‘spiral’ and potentially result in a ‘debt trap’ .
She said Zip NZ also has a local team trained to identify hardship and a specific hardship policy. Requests are assessed on a case-by-case basis, but will often result in deferred payment arrangements, the establishment of a personalized repayment plan, or the waiver/waiver of late fees.
Zip said it could not disclose what it charges a company to use its service and did not address concerns about the high fees.
Centrix chief executive Keith McLaughlin said its June credit indicator shows customer inquiries for BNPL and demand for new credit cards fell 32% during the month.
and 22% year-over-year, respectively.
Head of Rotorua’s budget advisory service, Pakanui Tuhura, told NZME last week that BNPL services became a problem when people failed to pay on time because penalties were “substantial”.
At the same time, Bay Financial Mentors director Shirley McCombe said the industry had “tremendous concerns” about customers racking up debt on buy now, pay later services.
They were used for dental care, car and tire repairs, food, clothing, shoes, haircuts, feminine hygiene products, alcohol, and even vouchers.
“If managed well, it can be a good solution, but it often isn’t.”
A spokesperson for MBIE said it was reviewing 63 submissions on the services, which included alcohol sales and credit given to those who cannot afford it.
He would report to Trade and Consumer Affairs Minister David Clark, who was due to present a proposal to Cabinet shortly to decide the government’s approach.