What is buy now pay later?

Buy now pay later (BNPL) is a relatively new way of making purchases, but it’s certainly catching on. Close to four million BNPL accounts were active in 2018/19, up from less than half a million in 2015/161.

The idea behind BNPL is very simple. It works a bit like lay-buy in that you pay purchases off gradually, usually over a series of equal instalments. Instead of taking the items home after they’ve been paid off in full, you can walk out of the store with your new purchases from day one.

There’s no doubt this sort of ‘instant gratification’ can be very convenient. It’s the same reason why credit cards are so popular: You get to take purchases home today with very little upfront cash outlay.

While BNPL may be growing in popularity, it’s still dwarfed by more traditional payment choices. Reserve Bank figures show that in 2020, BNPL accounted for just 2% of the combined value of debit and credit card purchases2.

Traps to watch out for.

Part of the appeal of BNPL is that no interest charges are paid. As a rule, BNPL providers make the bulk of their money by charging retailers a fee on sales3 (a cost that may be passed on to the consumer by increasing the product price).

That’s not to say BNPL is cost-free for shoppers. If you run late with payments, you’re likely to be charged a late payment fee. And research by the Australian Securities and Investments Commission (ASIC) shows one in five BNPL users are missing payments.

As a guide to the scale of late payments, in 2018/19 BNPL users paid over $43 million in missed payment fees4. That figure was up 38% on the previous financial year. More worrying, 47% of BNPL users who missed a payment were aged 18 to 295.

The danger zone can be loading yourself up with too many BNPL purchases or signing up to multiple BNPL platforms. It’s not just a challenge juggling all the different payments. The outflow of cash can drain your finances.

ASIC6 found over one in five (20%) of BNPL users had to cut back or go without essentials (such as meals) to meet their BNPL payments. Almost one in six (15%) said they had taken out an additional loan to pay off the amount owing.

Is BNPL right for you?

BNPL may be convenient. But it’s important to decide whether it will encourage you to overspend. It also helps to stick to just one or two BNPL providers. If you sign up to several different platforms, it can become a lot harder to keep track of the payments due to each provider in order to avoid late fees.

An easier option can be a low rate credit card. One of the pluses of credit cards is that your bank is required by law to take a good look at your finances to be sure you can handle the card debt. And with a Defence Bank Foundation Credit Card* you get the benefit of a low rate plus 55 days interest-free to pay off purchases before interest applies.

Whether you choose BNPL or a low rate credit card, what matters is that you spend wisely. The team at Defence Bank can offer more details. Call our Contact Centre on 1800 033 139 or visit your local branch to find out more.

Got questions? We have the answers. See our FAQs.


# Terms and conditions, fees and charges apply and are available upon request. Approval subject to Defence Bank's lending criteria. Rates apply to new applications received however are subject to change at anytime. Defence Bank’s Target Market Determination can be viewed here.


1 https://asic.gov.au/media/5852803/rep672-published-16-november-2020-2.pdf
2 https://www.rba.gov.au/publications/bulletin/2021/mar/developments-in-the-buy-now-pay-later-market.html
3 https://www.finder.com.au/interest-free-finance
4 https://asic.gov.au/about-asic/news-centre/find-a-media-release/2020-releases/20-280mr-asic-releases-latest-data-on-buy-now-pay-later-industry/
5 https://asic.gov.au/media/5852803/rep672-published-16-november-2020-2.pdf
6 https://asic.gov.au/media/5852803/rep672-published-16-november-2020-2.pdf


Important note: This information is of a general nature and is not intended to be relied on by you as advice in any particular matter. You should contact us at Defence Bank to discuss how this information may apply to your circumstances.

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