One of Australia’s top financial advisers has described the “buy now, pay later” (BNPL) sector business model with fantastic potential benefits.
In his latest report, “Afterpay: Hype and Reality”Professor Janek Ratnatounga, CEO of the Australian and New Zealand Institute of Certified Public Accountants (CMA) and a former World Bank consultant, said BNPL players are among the top selling points used to differentiate themselves from traditional credit providers. I’m talking about two things. No credit bureau for free-just seduce an illusion.
BNPL users usually pay four interest-free transactions, but if they miss or delay repayment, they incur a “late fee”. This is claimed to be cheap, unlike credit card interest, but it’s not.
Using Afterpay, a major player in the sector, as an example, explain that delinquency fees are related to the amount and days of unpaid amounts since the last payment. This turns out to be a 435% effective interest rate (EIR) for a $ 40 purchase. 56% EIR for purchases up to $ 1,500.
This is significantly higher than the 20% EIR charged by credit card companies.
“This is not a complicated calculation. The important details are printed in detail and most customers just miss it,” Ratnatunga told The Epoch Times on August 24th.
He also said that no afterpay credit check is also fake, as the only way to pay quarterly installments is to use credit and debit cards. This means that Afterpay offers a very short time frame for purchase costs to reach the customer’s credit card.
“By linking the payment platform to credit cards, Afterpay is effectively using the credit checks of credit card companies’ customers,” he explained. “Ultimately, your debt will be the responsibility of your credit card.”
Ratnatunga also warned that other players are using the same strategy, but “many hooks to seduce millennials.”
“In fact, afterpay seems to be the most restrained in terms of credit limits,” he added.
Sector encourages overspending
However, the rapid growth of the BNPL sector over the last six years has raised some concerns. Ratnatunga points out that the sector is targeted at millennials who are not financially savvy and individuals who do not have access to credit cards.
“The founders of Afterpay acknowledge that the platform is designed for millennials. Millennials are a digitally savvy group who are not afraid to try new things as long as they make life easier. “He said. “Unfortunately, being digitally savvy is often not the same as being financially savvy.”
He also intensified competition in this sector, despite Afterpay gaining a “huge starter advantage” with 16.2 million active customers and 982,000 registered merchants by the end of June 2021. I’m expecting. Its latest annual report..
However, intensifying competition in this sector does not benefit real customers. Rather, it may cause more problems.
“Winners will be the platform to gain the largest base of economically unsophisticated customers, which will allow them to sell more suspicious products and services to niches in their markets and incur more debt. Will be, “he said. “The real problem is that customers sign up for multiple BNPL platforms and really face the problem.”
Ratnatunga’s comments have been repeated by many consumer advocates who have witnessed more Australians struggling to pay their BNPL debt.
The latest in ASIC report When we entered the sector in November 2020, we found that 21% of users missed payment for BNPL purchases. An additional 20% reduced what they needed to pay for BNPL, and 44% missed household payments.
Financial Counseling Australia CEO Fiona Guthrie told The Epoch Times that some of the stories from financial counselors were really worrisome.
“Many people have multiple accounts with BNPL providers, and some spend 40% of their income on BNPL,” she said. “BNPL encourages overspending.”
“This is credit and should be regulated like a credit company,” she continued, adding that the self-regulation introduced by the sector in March was by no means satisfactory.