Buy Now, Pay Later – New? Old? Better?

This article is based upon a report originally published by The Initiatives Group in October 2019 which can be read here.

A new whitepaper released by The Initiatives Group explores the “new” form of BNPL that is growing quickly in Australia and appears here to stay. The speed of change in the BNPL sector is such that this paper will almost certainly be out of date upon being published, but retailers can get a quick snapshot of the current state of the sector.

Buy-Now-Pay-Later schemes are certainly not new – Latitude, Flexigroup and HSBC have supported retailers for many years with the like of “up to 60 months interest free” or “nothing to pay for 6 months” offers on large purchases. Some stores have adapted schemes of their own or partnered with credit providers. But now, it’s different.

New providers, such as Afterpay and Zip, deliver digital, mobile optimised, fast approval, small amount and easy to use finance option for what is a generally younger market. Industry sources suggest that the BNPL market grew 250% in 2018, while the new users have increased fivefold in the last two years.

Who provides “new” BNPL in Australia?

The best-known new providers of BNPL are Afterpay, with 4.6 million active customers, and Zip, with 1.3 million, while other smaller players have recently joined the field or have announced their intention to do so. These providers launched with online retailers where most of their revenue lies, but they are aggressively increasing physical point-of-sale purchases.

The physical market is also filled with options for customers, as new BNPL entrants offer customers a variety of terms and conditions, and payment options. For example, the Go Mastercard gives users options between a number of payment plans and has an establishment fee of $25; Flexigroup’s “Bundll” offers a free two-week period and charges a $5 flat fee to extend payment for another two weeks.

While BNPL providers tend to be treated the same in the media, it’s clear they have plenty of differences – who pays? How do you make a purchase? How much can be spent? Retailers would be well aware of the differences between providers, not least between the merchant fees that are charged. And if retailers aren’t already using it BNPL with customers, there’s a good chance that it will be impacting their market soon as it develops business-oriented offerings for SMEs, such as “Prospa Pay” and the soon to be launched “Zip Biz”.

The regulators

The sector has grown alongside a trend that increases convenience at the expense of payments security as providers move towards a “frictionless” experience. Customers have been drawn towards quick and easy systems, though they come with drawbacks – the approach only works in a safe credit environment, and it exposes the system to fraudulent use with minimal identity checks. These issues have raised concerns with regulators, with a Federal Senate inquiry in 2018 publishing a swathe of recommendations that would change the sector.

Since then, AUSTRAC has been granted product intervention powers that apply to the BNPL sector, and the Banking Royal Commission recommended to abolish the “Point of Sale Exemption” that allows retailers to introduce borrowers to lenders for regulated credit without needing to hold an Australian Credit Licence (ACL). Regardless of what transpires, the industry is on notice that regulators and legislators are watching.


As noted earlier, things are changing rapidly! On Friday October 18, news broke that The Reserve Bank will consider intervening in rules that stop retailers from surcharging customers who use BNPL services. This is similar to allowing retailers to surcharge when credit cards are used for purchases, but it does not mean that retailers will actually choose to surcharge.

Where does this leave BNPL?

The growth of BNPL customers and falling number of credit card accounts in Australia suggests the sector is here to stay. However, the possibility of a more regulated future, the potential of a tougher credit market with higher levels of bad debts, and increased competition are all likely to force changes to the format of BNPL and the way it is delivered, the fees that merchants and users pay for services, and the variety of providers in the market.


Read The Initiatives Group’s full report here.





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