Some desperate shoppers are going without meals or taking out additional loans just so they can meet their buy now pay later repayments, a new report has found.

The Australian Securities and Investments Commission's report, "Buy Now Pay Later - an industry update", released on Monday showed the number of BNPL transactions has soared.

It climbed from 16.8 million in the 2017-18 financial year to 32 million in the 2018-19 financial year - an increase of 90 per cent.

It found one in five consumers (or 1.2 million people) who use the schemes are experiencing financial hardship and have even resorted to cutting back on or going without essentials such as meals and have taken out other loans in order to meet their BNPL payments.

It found of those who had missed BNPL payments or were late, they missed payments on household bills (44 per cent), credit card payments (32 per cent), and mortgage repayments (22 per cent).

The report gathered data from six BNPL schemes including Afterpay, BrightePay, Humm, Openpay, Payright and Zip Pay.

It also collected information from four major financial institutions.

The key findings of the report included:

• Some BNPL arrangements result in inflated prices of goods and services.

• The BNPL schemes are rapidly growing and evolving.

• BNPL schemes have influenced the spending habits of some customers.

• Financial overcommitment is a risk.

• Providers do try and act fairly with consumers but could do more.

Financial Counselling Australia's chief executive officer Fiona Guthrie said she was "incredibly concerned" about the harm caused by these schemes.

"It's being used by people to fill income gaps," she said.

"Buy now pay later is credit and it should be regulated like credit.

"Financial counsellors are saying that more and more of their clients are presenting with buy now pay later debts, you can get it for a couple of hundred of dollars up to $30,000."

As of June 2019 the six major BNPL providers have approved 6.1 million BNPL accounts.

Of these the active accounts climbed from 2.7 million in the 2018-19 financial year to 3.7 million in the 2018-19 financial year.

The schemes vary is terms of loan amounts, payment periods and the average transaction value.

Buy now pay later schemes continue to boom in popularity in Australia and overseas.
Buy now pay later schemes continue to boom in popularity in Australia and overseas.

Afterpay has a maximum loan amount of $2000 and shoppers have up to 8 weeks to pay off the goods.
The average transaction value is $147.

This compares to Zip Pay where there maximum loan amount is $1500, there's no fixed term to pay it off and the average transaction value is $171.

Most BNPL do not charge interest but they do hit customers with missed payment fees if they fail to meet the strict repayment criteria.

Afterpay issued a statement on Monday via the ASX and said their scheme is "unlike traditional credit or other BNPL providers".

The company's CEO Anthony Eisen said they have "built-in consumer protections that ensure average transaction values remain the lowest ($147 versus $8000), payment terms are strictly short-dated (6-8 weeks versus up to 60 months) and customers cannot revolve in large or accumulating amounts of debt.

"Consumers are immediately suspended from using Afterpay if they miss a single instalment payment".

The report found one in five customers are missing their scheduled repayments and consequently missed fee revenue in the 2018-19 financial year totalled $43 million - an increase of 38 per cent compared to the previous financial year.

Regulatory changes are coming in 2021 that will significantly overhaul the schemes which have come under intense scrutiny in recent years after its explosion in popularity.

A code of conduct is being developed that will help provider better consumer outcomes.


Originally published as Buy now pay later users being ripped off as they skip meals