Money. Cash. Dosh. Notes. Bills. Whatever you call it, many of us would like a little bit
extra from time to time. That'd be nice. And the thing is we can have a little extra cash to burn,
even if our bank balance doesn't show it thanks to services called Buy Now, Pay Later. You've
probably seen them lurking at the checkout, and they do what they say on the tin. You buy
your absurdly overpriced donuts and pay them off in smaller, interest-free, bite-sized payments.
Yum. It's the biggest revolution in fin-tech, or financial tech,
if you like long words, since credit cards became a thing in Australia in 1974.
It's a little card that brings you instant cash...
Now, it's a little app that brings you the instant cash and,
according to the Reserve Bank of Australia there were seven million active buy now,
pay later accounts last financial year, spending a total of 16 billion dollars,
and most of those accounts were young people. In fact, some estimates reckon people aged
between 18 and 35 make up around 60% of the customers. So, what makes it so appealing?
Because some people just don't have the money at the time to like, get something they want...
Like concerts, or devices but they can't pay outright, so it's easier to get them.
You don't need to walk into a bank office, you don't need to make a phone call, you don't need
to tell anyone. I think those are the main kind of aspects that make them appealing to young people.
And on top of all that, the cost of the products being bought through these services generally
aren't too high. But before you go out and start making it rain, hold your horses.
[Horse neighs]
Part of the reason it's so easy to get in on the buy now, pay later action is because there's very
little regulation, or basically rules around how these services operate, and that can leave
users in vulnerable financial situations, including young people, facing a problem.
A big one. It starts with D and ends with T and it isn't donut. Debt. It's debt.
See, buy now pay laters are a form of consumer credit, like a credit card or a bank loan. But,
to get those you have to go through thorough identity and credit history checks to make
sure you can actually pay back what you borrow, which you don't have to for buy now, pay laters.
Research has found that people suffering from financial stress will often use buy now pay later
services, even for essentials like groceries but also that one in five users miss payments. And,
when you miss payments, you're charged a fee or interest on top of what you already owe,
which in some cases can be a whopping 50% so, things can get really expensive really
quickly and some people can find themselves falling into what experts call a 'debt spiral'.
I feel like I'm in a tunnel I can't get out of because I make
a repayment and then I spend it again to do some more shopping.
The lack of regulation also means that people under the legal age
of 18 can slip through the gaps in the sign-up process and spend up.
They might be signing up using their parents' driver's license, for instance,
or they might be signing up under their own name and it's simply not picked up on.
And, if you end up in too much debt and unable to pay then you could have
debt collectors knocking on your door and ruin your credit score,
which you need for things like car loans or mortgages in the future.
So I think maybe it seems like a good idea at the
time and then later on maybe they could regret it or something, I don’t know.
Right now, there aren't many protections in place for those people who find themselves in
a spot of financial trouble, and it's just been up to the individual services like Afterpay,
Zip, and so on to come together and self-regulate.
Some of them are quite good in terms of hardship measures for their customers,
but some of them aren't. And so, it really is just the luck of the draw. The right answer to this
isn't necessarily “oh, young people just shouldn't use them. They should never use credit” because
it's not realistic. Young people have financial needs, they need to be able to access credit,
but they need to be able to do so safely and with appropriate consumer protections in place.
This is where the government steps in. They've come up with three options: Option 1, tougher
industry self-regulation that'll include an affordability test. Option 2, applying a version
of the credit act which is used for things like credit cards and loans but a little less strict.
Option 3, treating buy now, pay laters exactly the same as all other consumer credit products
and hitting them with the full regulations. So, what's the best option? Dunno.
Some people, including some of the buy now, pay laters, reckon option 3 is the way to go,
while others say the risk with buy now pay laters are far less than normal credit options and it's
overkill. But something almost everyone can agree on is that some form of change needs to happen.
The right sort of regulation will ensure you've
got checks and balances so that people who simply can't afford it should find
it difficult to prove the case about why they should get another account.
Yeah, I think there should, I think there should be more rules around who can use it.
Making sure that you have a job that you can afford to pay back these services later.
This is a kind of credit product that's used by young people, and for many of them will be the
first form of credit that they use. So, we need to make sure that doesn't go really badly for them.
Whatever regulation gets the green light it won't come into effect until later this year. But,
if you are over 18 and you are already using these buy now pay later services,
there are a few things you can do to avoid the dreaded D word.
Where possible only use one service at a time. Really important to think about can I still
repay this if I work one less shift if I get sick next week. Just build in some space for the things
to go a little bit wrong when you are, you’re planning out your repayments don't only consider
the best-case scenario, because unfortunately that's not always going to be the case.