The 'Buy Now, Pay Later' Online Trend

What is Buy Now, Pay Later?

Buy now pay later allows you to defer your payments for up to a year. This lets you purchase and use the product now, but pay for it later giving you time to manage your budget. Since a 'Buy now pay later' service allows customers to delay the payments for their purchased products, many people are enjoying this service online.

How Buy Now, Pay Later works

In the diagram below, it shows how the Buy Now Pay Later service works online.

1. Customers in the online store will place items they want to buy in their shopping cart.
2. At the checkout page, you can select the Buy Now Pay Later (BNPL) service.
3. You would then be directed to the BNPL service page, where you will sign-up or sign into your account.
4. The BNPL service will assess your credit risk and either approve or reject the financing for this purchase instantly.
5. If approved, you will be directed back to the online store where the transaction is registered.
6. If rejected, you would have to choose an alternative option to pay for the products in your shopping cart.

Once the purchase has been confirmed, you are legally obligated to make the agreed repayments through the Buy Now Pay Later service. Payments are usually direct debited from your account on a schedule. If you don't have enough money in your account at the time of the direct debit, you may be charged a late fee.

What are the Cost and Benefits for Customers and Merchants?

Benefits for Customers

• The possibility to take home the product even if you don't have enough money to purchase it at that moment
• Smaller, manageable repayments
• Simple sign-up and almost instant assessment (much simpler and quicker than getting credit card)

Benefits for Merchants

• Increased conversion
• Increased average transaction value
• Comparatively easy integration

Cost for Customers

While it is zero or low cost for customers if they pay their debt to Buy Now Pay Later services within the interest free period, late payments or payments after the fee period will incur additional fees.

Most Buy Now Pay Later providers do not check individual's ability to pay back the money borrowed, this means for some people they could end up racking up debt they can't afford or will have a hard time paying back.

Cost for Merchants

Access to the Buy Now Pay Later service has costs, merchants pay transaction fees which is higher than with more traditional payment methods (credit/debit cards, Paypal).

'Buy Now Pay Later' Consumer Behaviour

There are many services like Afterpay and ZipPay offered to customers that allow them to easily sign up for the Buy Now Pay Later service, it's become popular for many to take home their purchases without paying for the full amount that same day.

These Buy Now Pay Later service providers allow shoppers to link their debit and credit cards to their purchases. The purchased product is then paid over 4 equal fortnightly instalments for Afterpay and an option of weekly, fortnightly or monthly instalment for zipPay.

Many shoppers are copping late fees. In fact, last year Afterpay and zipPay made one fifth of their revenues from late fees paid by retailers. This suggests that many customers were not able to keep up with their payments or forgetting to pay. Since their credit or debit card is linked to their purchased products, customers can get hit twice with the late fees from banks and the card interest.

For more information on budgeting and how it can help get your finances back on track, check out our budgeting page.