Reserve Bank of Australia reports on BNPL use surge

To be precise, the paper shows that Australia's younger demographic, specifically individuals aged 18 to 39, is displaying an increased adoption of Buy Now, Pay Later (BNPL) services. The study revealed that over 40% of this age group had utilised instalment loans in the past year, marking a substantial rise from the 2019 statistics. 

The broader trend across all age groups indicates a notable uptick in BNPL usage, with almost one-third of Australian adults engaging with these services in the past 12 months. This represents an increase of approximately 8 percentage points compared to 2019, according to findings from an RBA research paper based on its 2022 consumer payments survey. 

The survey, which involved nearly 1,000 participants, introduced a new dimension by collecting data on the number of BNPL accounts held by consumers across different providers. On average, users were found to have two distinct accounts. 

BNPL services, offered through platforms such as Afterpay, Affirm Holdings, and Klarna Bank, have gained significant popularity since the onset of the pandemic. These services typically provide interest-free credit repaid in instalments, offering an alternative to traditional credit cards and their associated interest rates. However, they have faced criticism for potentially encouraging irresponsible spending habits and contributing to debt-related issues. 

In response to the growing influence of BNPL services, the Australian government announced plans in May 2023 to regulate such firms under credit laws. This regulatory framework would necessitate compliance with responsible lending obligations, the possession of Australian credit licenses, and adherence to specified standards related to conduct and products. 

The RBA's research paper also highlighted that consumers with access to multiple BNPL accounts could foster competition within the market. According to The Business Times, providers, including companies such as Afterpay, Affirm Holdings, and Klarna Bank, may find themselves competing to attract consumers to their respective services.

Australia’s plans to regulate BNPL 

In May 2023, Reuters reported on Australia’s intention to regulate Buy Now, Pay Later services as a form of consumer credit under new legislation. This move would necessitate BNPL providers, including Afterpay and Zip Co, to conduct credit history checks. The proposed regulations were expected to be among the strictest globally for this emerging sector, placing these companies under the jurisdiction of the Australian Securities and Investments Commission (ASIC). Among nations monitoring BNPL as a conventional credit product, Australia would rank second only to the United Kingdom. 

Reuters further clarified that BNPL services are frequently utilised by financially strained consumers seeking on-the-spot interest-free loans with minimal credit verification, often leading to debt levels beyond their capacity. Australia, home to approximately a dozen registered BNPL service providers, recorded around seven million active BNPL user accounts in the 2021–22 period, generating AUD 16 billion (approximately USD 11 billion) in transactions.