Buy Now, Pay Later (BNPL) services have revolutionized the personal loan landscape, largely because they are easy to access and charge no interest, circumventing national credit laws.
In the 2021-22 fiscal year, according to data of the Reserve Bank of Australia, the number of active BNPL accounts in Australia increased from 5 million to 7 million. Collectively, these users spent A$16 billion, about 37% more than in previous years (and about 2% of all card purchases).
With the federal government consider options now to better regulate the industry, we examined how this largely unregulated but growing corner of the debt market is impacting BNPL’s biggest users: young adults.
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 surpassed only by credit cards, which were 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 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 BNPL usage in the previous year.
In the Australian Youth Barometer 2021 53% of participants said they had used a BNPL service at some point. That result was largely consistent with research of the Australian Finance Industry Association. As of March 2021, AFIA’s surveys found that 44% of 18-24 year olds and 52% of 25-35 year olds had used BNPL. In March 2022, those percentages were 55% and 58% respectively.
Financial difficulties are widespread
Our 2022 survey shows that 90% of young Australians have experienced financial difficulties at some point in the past year. About a quarter said this happened often or very often.
In our Survey 202182% said they had had financial problems in the past two years.
Financial stress is associated with BNPL use. Our 2022 survey data shows that 30% of those who experienced financial distress very often in the past year used BNPL services, compared to only 8% of those who had never experienced financial distress.
But the relationship is ambiguous, with BNPL use most common among those who experience financial distress only occasionally.
Attitude towards BNPL
Generalizations about the fact that young people “addicted‘ on BNPL credit are therefore incorrect. As in any demographic, attitudes vary.
Our 2021 survey results show that about half are wary of BNPL services, agreeing they have a negative impact on young people’s financial behavior.
But as incomes can’t keep up with living costs, especially for energy and housing, the high use of BNPL should set alarm bells ringing.
From the treasury consultation paper on regulating the BNPL industry highlights the need to subject BNPL companies to the same kind of responsible lending standards and requirements that are imposed on lenders through the Australian National Consumer Credit Protection Act.
BNPL products are not subject to these credit laws because they do not charge interest, which is essential to the law’s definition of lending. As the Treasury bill notes:
This unintended regulatory loophole creates the potential for consumer harm due to the lack of key protections available for other products regulated by the Credit Act.
Closing this gap is important to increase the protection of youth and BNPL users.
But just as important is addressing the underlying cause causes of financial uncertainty pushing people into debt in the first place.