As the government’s corporate regulator puts “buy now pay later” schemes under the spotlight, the Illawarra Business Chamber is concerned retailers – not consumers – might be losing out.
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A review by the Australian Securities and Investments Commission (ASIC) found as of June 30 consumers had racked up $903 million in buy now pay later debt.
The schemes – such as Afterpay or Zip – allow consumers to buy something immediately then pay it off in installments interest free. The catch is some arrangements have various fees associated while no credit checks are undertaken.
Major retailers across the Illawarra now offer these services, with many smaller businesses also following suit.
Illawarra Business Chamber executive director Adam Zarth said they were monitoring the incentive schemes closely as often they left business owners to pay interest on goods they were handing out
“Whilst some retailer encourage the greater movement of stock with people in a better position to be able to purchase, they are often the ones who end up paying for interest,” Mr Zarth said.
“Afterpay shifts a bit of cost for each business … we just don’t want to see retailers have their already slim margins eaten into.”
ASIC Commissioner Danielle Press said many consumers were enjoying the freedom of the schemes but there were potential risks.
“The typical buy now pay later consumer is young with 60 per cent of … users aged between 18 to 34,” Ms Press said.
“We found that buy now pay later arrangements can cause some consumers to become financially over-committed and liable to paying late fees.”
The review found one in six customers had become overdrawn, delayed their payments or borrowed extra money to pay their installments.
Mercury reader Paul Pulcin regularly uses the initiative but said you need to be “responsible and sensible” about it.
The Cringila resident uses Zip Money for large purchases like car tyres so he always has cash in the bank; and Afterpay for smaller “indulgent items”, like extras for his motorbike or something for his children.
“I never max it out and always pay extra to ensure it's paid off well before the interest free period ends,” he said. “[I] never have more than one purchase going at a time.”
ASIC STATISTICS:
- 60 % of users are 18 to 34-year-old
- 2 in 5 users earn under $40,000
- 40% of users are students or work part-time
- 1 in 6 users had become overdrawn, delayed other bills or borrowed money to make payments
- At 30 June 2018, there was $903m in outstanding buy now pay later balances