How afterpay and Zippay is changing buyer behaviour. Cec Busby reports.

Remember lay-by? Your great grandparents were likely big fans of it. Lay-by allowed people to put a product aside in a store and layaway the funds over time to pay for it. Once you’d paid off the purchase price, you were free to collect the product. There was no interest accrued and payments were smoothed over time.

Certainly, it lacks the instant gratification expected by most buyers today, but for a generation who had survived a war and been through rationing, layby seemed like a mighty fine way to purchase the big-ticket items you wanted but couldn’t immediately afford.

Today our appetite for consumption has led many Australians down the rocky road of credit card debt to the tune of $45billion and counting. According to a recent ASIC report discussed in this issue, young people are particularly vulnerable to credit card debt. However, that may be all about to change thanks to the rise of new payment options such as afterpay and Zip that provide an alternative way to purchase the products you want when you want.

It could be said that afterpay and Zip take the layby model of yesteryear and tweak it to suit the needs of today’s consumers. Rather than wait until you have paid off your purchase to receive your product, these payment alternatives allow you to buy now but pay later. As an example, in the case of afterpay, you can purchase a product and have it delivered but only make the first payment two weeks after the initial purchase and then pay three equal payments over the following six weeks.

Gen Z and millennials are taking to the platform in droves. As of July 2018, 2.2 million people in Australia had made a purchase with the platform and afterpay is available at over 10,000 retailers throughout Australia including a slew of big merchants such as Big W and Kmart as well as airlines such as Jetstar.

It sounds like a win-win situation for all… But is it?

In a survey of 1000 afterpay users, credit comparison site Mozo found 30 per cent of respondents admitted to having missed at least one afterpay payment. While more than six in ten (65 per cent) said the ability to make smaller payments influenced them to make purchases they wouldn’t normally make.

So is this buy now pay later option creating more debt? The answer is difficult to ascertain.

On the one hand, the ability to smooth payments and the lack of interest is proving a boon for this young generation of shoppers. However, some consumers may be exceeding their budgets. The majority of respondents said they use the platform multiple times in a month, which could provide the perfect storm for people to overextend themselves. 65 per cent of those surveyed said that they typically had one-two afterpay payments on the go each month, while close to a third (29.3 per cent) admitted that they had as many as three-five on the go at once. 45 per cent of those surveyed said they were using afterpay more often than a debit or credit card!

“The popularity of Afterpay has taken Australia by storm, but we are urging Afterpay users to think carefully about potential purchases. A $100 pair of jeans broken down into fortnightly payments of $25 is very appealing, especially when you can take home the goods on the spot, but you still need to pay for that product in full,” said Mozo Director, Kirsty Lamont.

“Afterpay is highly appealing to shoppers who don’t have the money on hand to make a purchase in one payment, and therein lies the risk. Small payments are snowballing for some users, resulting in late payment fees, potentially poor credit ratings and spending beyond one’s means.”