Buy now, pay later (BNPL) products such as Afterpay or Zip Pay have increased in popularity in recent years, with the Covid-19 pandemic seeing customer growth increasing dramatically.
It’s unsurprising why this is the case given the fact millennials are now 37% less likely to own a credit card because they prefer the simpler repayment schedules of BNPL platforms.
Not to mention the fact most BNPL platforms cap their late fees, which are usually only a few dollars at a time, when credit card interest rates can be 20% per annum – this can result in thousands of dollars in interest debt. Then there are also annual fees to consider.
David Liston, spokesman for anti-credit card lobby SmartWayToPay, explained why banks choose to “weaponise” myths about BNPL products and why financial institutions should be paying close attention.
“They’re very dangerous to a bank’s bottom line, which is why the banks are propagating patronising myths about BNPL,” Liston told us. “There are always financial risks associated with financial products. However, the reality is that the worst-case scenario for BNPL customers is much better than for credit card customers.”
He added, “ANZ boss Shayne Elliott has attacked BNPL, saying it ‘doesn’t really fit into improving the financial wellbeing of our customers’. This is from the CEO of a bank whose rewards credit card has a 20.24% interest rate and an annual fee of $375.”
“It also ignores the fact that an Afterpay user is now almost as likely to be over 40 as they are under 40, casting doubt on the claim that Afterpay customers are not attractive to traditional banks.”
So, can having a BNPL balance really affect your chances of getting a home loan?
“Yes, lenders will consider your outstanding BNPL balance when assessing you, however, this argument is a smokescreen because a credit card can be far worse.
“When it comes to credit cards, they look at your whole credit limit, not just how much of that limit you’re actually using, and they then multiply it by seven, i.e. a $10k credit card limit shows up as $70k liability on your borrowing capacity/application.”
“Just this week we’ve seen reports of more attempts to protect the credit card business. Zip boss Peter Gray told a parliamentary committee the biggest reason his customers delete their accounts is that their banks are demanding they do it.”
With many banks and financial institutions starting their own BNPL platforms, Liston says it shows they don’t believe their own hype about the dangers of BNPL – rather, they view the products as “a threat to their credit card business” and want a piece of the pie.
When asked if he believed BNPL products could replace credit cards in the future, he said, “I certainly hope so. High-interest credit cards are an archaic product. BNPL certainly looks to be gaining a huge amount of ground on credit cards.”
One reason some people might still choose to use a credit card over a BNPL product would likely be the rewards they can receive. However, Liston reveals that while there can be some value in those rewards, you might have to spend as much as $52,180 to redeem a toaster worth $129 with credit card points.
Liston stresses, however, that all forms of consumer credit have dangers to them and BNPL products aren’t exceptions to the rule.
“What’s important to consider is the level of debt one can get themselves in is much lower in BNPL as it is using credit cards,” he explained. “More often than not, the smartest way to pay for something is with the money you have saved. However, when this isn’t an option, BNPL products are a far smarter way to pay for something than a high-interest credit card.”