Buy Now, Pay Later (BNPL) services have radically changed the landscape of personal loans, in large part by being easy to access and charging no interest, thus avoiding national credit laws.
During the 2021-22 financial year, according to data from the Reserve Bank of Australia, the number of active BNPL accounts in Australia increased from five million to seven million. Collectively, these users spent A$16 billion, around 37% more than in previous years (and around 2% of all card purchases).
As the federal government now considers options to better regulate the industry, we have studied how this largely unregulated but growing segment of the debt market affects BNPL’s biggest users – young adults.
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Our annual survey of people aged 18-24, the Australian Youth Barometer conducted in August, indicates that 27% of young people have used BNPL in the past 12 months. BNPL’s popularity as a credit product is second only to credit cards, used by 31% of young Australians in the past year.
About the Australian Youth Barometer
This is the second year of the Australian Youth Barometer, a nationally representative survey sample of 505 Australians aged 18-24.
In 2021, we asked young people if they had ever used a BNPL service. This year we asked about the use of BNPL in the previous year.
In the 2021 Australian Youth Barometer, 53% of respondents said they had ever used a BNPL service.
This finding was broadly consistent with research by the Australian Finance Industry Association. In March 2021, AFIA surveys found that 44% of people aged 18-24 and 52% of those aged 25-35 had used BNPL.
In March 2022, these percentages increased to 55% and 58%, respectively.
Financial difficulties are widespread
Our 2022 survey reports that 90% of young Australians have experienced financial hardship at some point in the past year. About a quarter said it happened often or very often.
In our 2021 survey, 82% said they had experienced financial difficulties in the previous two years.
Financial stress is correlated with the use of BNPL. Data from our 2022 survey indicates that 30% of those who have experienced financial difficulty very often in the past year have used BNPL services, compared to only 8% of those who have never experienced financial difficulty.
But the relationship is unclear, with BNPL use being most prevalent among those who experience financial difficulty only sometimes.
Attitudes towards the BNPL
Generalizations about young people “hooked” on BNPL credit are therefore inaccurate. As with any demographic, attitudes vary.
Our 2021 survey results indicate that around half distrust BNPL services, agreeing that they have a negative effect on the financial behavior of young people.
But with revenues failing to keep up with the cost of living – especially for energy and housing – the high use of BNPL should sound regulatory alarm.
The Treasury’s consultation paper on regulation of the BNPL industry notes the need to subject BNPL companies to the same type of responsible lending standards and requirements imposed on credit providers through Australia’s Privacy Protection Act. Consumer credit.
BNPL products are not subject to these credit laws because they do not charge interest, which is essential to the definition of the law on granting credit. As the Treasury document notes:
- This unintended regulatory gap creates a risk of harm to consumers due to the absence of key protections available to other products regulated by credit law.
Closing this gap is important to increase the protection of youth and BNPL users.
But it’s equally important to address the underlying causes of financial insecurity that drive people into debt in the first place.
Lucas Walsh is Professor and Director of the Center for Youth Policy and Education Practice, Monash University
This article first appeared in The Conversation
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