\u201cIt enables consumers to buy something they otherwise couldn\u2019t afford, based on the expectation that they will be able to afford it at a later date.\u201d<\/p><\/blockquote>\n
Dr Duong adds that this type of spending appeals to millennials in particular. \u201cThey may have lower salaries, but they\u2019re more likely to make impulse purchases,” she explains.<\/p>\n
ASIC estimated that 47% of BNPL users surveyed were aged 18 to 29, and two in five had an annual income below A$40,000.<\/p>\n
Buy now, regret later<\/h2>\n
BNPL may offer instant gratification, but it\u2019s this very factor that leads some consumers to financially over-commit and accumulate hefty late fees.<\/p>\n
ASIC found that missed payment revenue totalled A$43 million for six major BNPL providers for the 2018\u201319 financial year. At 20%, late fees make up a larger portion of Afterpay\u2019s revenue than its competitors.<\/p>\n
\u201cIf you miss a repayment to Afterpay, you will be charged $10, and another $7 if the payment remains unpaid seven days after the due date,\u201d Professor Dutta explains.<\/p>\n
\u201cSo late fees could really add up. On a debt of A$150, just one A$10 late fee translates to an effective interest charge 6.67% for the fortnight. Just consider what a couple of late fees would equal in terms of an annual interest rate.\u201d<\/p>\n
These late fees are causing significant financial stress for some Australians. ASIC found that 21% of BNPL consumers surveyed missed a payment in the 12 months from October 2018\u20132019.<\/p>\n
One in five had also missed or delayed paying other bills, like credit card payments and mortgages, in order to make their BNPL payments on time.<\/p>\n The reason BNPL companies can seemingly lend money to people who may be least likely to make timely repayments comes down to the fact that they\u2019re not actually credit providers.<\/p>\n \u201cThe \u2018quasi-interest\u2019 these companies charge in late fees does not technically count as interest, so BNPL providers are not covered by the National Credit Act, and therefore aren\u2019t required to observe the Act\u2019s responsible lending obligations,\u201d explains Dr Duong.<\/p>\n Professor Dutta and Dr Duong have been waving red flags about these loopholes for some years now, and people are taking notice. In 2019 they published an article in The Conversation<\/em> about Afterpay\u2019s late fees<\/a>. It garnered 15,000 readers on its first day of publication and was subsequently re-published in The Guardian<\/em> and other online news outlets.<\/p>\n In January 2020, Professor Dutta, Dr Duong and two colleagues submitted a review of BNPL to the Reserve Bank of Australia (RBA). It detailed several ways the RBA could coordinate regulatory and industry action on BNPL providers to better protect consumers and merchants.<\/p>\n ASIC concluded in its 2020 report that \u2018design and distribution obligations will apply to \u2026 buy now pay later arrangements.\u2019 In part, this means BNPL providers must be fully transparent about the services they offer, and for whom they are most appropriate.<\/p>\n The RBA and ASIC stopped short of recommending that BNPL providers be regulated in the same way that credit card companies are, but consumers are at least more aware of what they\u2019re signing up for.<\/p>\n \u201cBNPL is not a bad service, and if someone I knew wanted to use it, I would say do so, but know your limits,\u201d advises Professor Dutta.<\/p>\n \u201cIf you\u2019re not an impulse buyer, it can be a good platform for you,\u201d adds Dr Duong. \u201cBut basically, it comes down to financial literacy: if you don\u2019t have the money, don\u2019t buy it.\u201d<\/p>\n Dr Lien Duong<\/strong><\/a> is a Senior Lecturer in Curtin\u2019s School of Accounting, Economics and Finance. She has worked in the accounting and finance industry as a management accountant, tax accountant and business analyst. Her research has been published in international journals and focuses on mergers and acquisitions, merger waves, executive compensation, corporate governance, financial reporting quality and statistical modelling.<\/p>\n![\"Revenue](\"https:\/\/www.curtin.edu.au\/news\/wp-content\/uploads\/2021\/07\/Revenue-sources-of-BNPL-providers-1.jpg\")
The fight to tighten loopholes<\/h2>\n
Researcher profiles<\/h3>\n