“I couldn’t afford groceries.”

Getting by has always been difficult for young adults like Amy*.

And experts say only financial education and awareness will stop it getting worse.

by Lilli Thompson


Amy has moved back into her family home in Maitland after renting in Sydney for two years. One of the main reasons for returning was the cost of living.

​The 22-year-old was working as a childcare educator and had approximately $200 a month to save or spend once she had paid for all her living expenses.

But despite her limited discretionary budget, Amy was spending $300 on shopping – $100 a month more than she could afford.  She felt the buy now pay later service, ‘Afterpay’, was her solution.

“If I could Afterpay something I would. When I was living in Sydney a lot of my money went to rent, so whenever I wanted new clothes Afterpay would help me get those things because I didn’t actually have to save for them,” said Amy.

Young adults struggling to afford luxury goods and services is nothing new, but the buy now pay later payment method is making it easier than ever for young people to make purchases they simply cannot afford.



The Australian Securities & Investment Commission is alert to the fact that young adults are increasingly reliant on these services, lured in by the convenience of interest-free instalments.

“We continue to receive information from a range of stakeholders including consumers, consumer advocates and legal centres, which raises concerns that buy now pay later arrangements are causing some consumers to become over committed,” an ASIC spokesperson said.



Retailers and service providers offer buy now pay later (BNPL) services online and in-store as a payment alternative at the time of checkout.

BNPL platforms such as Afterpay, Openpay, Zip and Humm have become an increasingly popular way for shoppers to pay for purchases. Each month they are used for millions of transactions and allow shoppers to buy a product immediately and delay payment without having to pay interest.

BNPL isn’t just offered for purchases of low-value like furniture and clothes. Health services and aeroplane flights can also be bought using this payment method.


For every purchase made online or in store using a BNPL service, the provider pays the retailer for the goods or service and deducts a quarter of the purchase price from the shopper’s debit or credit card linked to their account. The shopper then pays the remaining three-quarters over four instalments due fortnightly. The only fee BNPL providers charge to shoppers is when a repayment is late.

BNPL accounts are set up using the provider’s app or website and every user is granted immediate approval online. No new card application or credit check is needed, just a debit or credit card so that fortnightly repayments can be deducted from the shopper’s bank account.

BNPL providers make a profit by charging a fee that is 4 to 6 per cent of the purchase price to the retailer or service provider so they can use the payment method service during transactions.

Amy’s first Afterpay purchase was furniture for her new Sydney apartment three years ago. It didn’t take long for Afterpay to become the currency of her life.

“I would always use my income to purchase items using Afterpay the day I got paid. Since I got it two years ago I would just pay one item off and get a new one straight away,” she said.

​Amy is one of the 5.8 million Australians who, by the end of 2019, had used one of the BNPL payment methods. Almost 56 per cent of users are aged under 35.

*Click the graph to visualise the data

BNPL is based on the psychology of the spending brain, that is if you break down the purchase price into smaller amounts, it gives the illusion that a good or service is cheaper than it really is. Data shows that Gen Z and Millennial shoppers appear to be more willing to purchase a good or service if they can spread $100 over four $25 instalments, rather than paying the full $100 upfront.

Amy is no different. She found shopping to be more affordable using Afterpay.

“I would do a lot of my shopping online because the first repayment is taken out of your account the following fortnight, so it kind of seems free at the time of purchase.”

Professor Vince Mitchell, Head of Marketing at the University of Sydney Business School, said shoppers have a problem with saving and this is why BNPL services are so popular.

“It isn’t not so much instant gratification which plays a role in people signing up to these, but their inability to defer gratification as long as it would take for people to save up for it. Waiting months or years for something you want, is something many people struggle with”, he said.


Buying a new dress or pair of swimmers would bring Amy joy but soon after purchasing the item, nerves would set in. In the back of her mind she would wonder how she was going to juggle her money to make the next repayments.

BNPL services are unregulated. This means that BNPL services are free of obligations that apply to credit card providers such as conducting credit checks, which increases the risk of lending to those who are unable to afford it – like Amy.

“In terms of whether these arrangements ought to be regulated is a question for the government to consider and define in legislation,” said an ASIC spokesperson.

Definitions under the National Consumer Credit Protection Act 2009 (Cth) (National Credit Act) which includes the National Credit Code, have created loopholes allowing BNPL services to operate without an Australian credit licence.

“Afterpay argues they are not providing credit – I don’t believe that,” said Campbell Nicoll, Chief Credit and Risk Officer at Regional Australia Bank.

“Their primary argument is that we don’t have to be regulated because we are not providing credit, but they are providing credit. They are allowing someone to retain a good, without having to pay for it first – so it’s credit,” said Mr Nicoll.


​Wary of credit cards, young people are gravitating towards BNPL services, believing they are a less risky option.

And debt, interest rates and complicated bank processes are also leading young people towards what they find to be familiar – mobile apps. The convenience of an app enables people to access money anywhere, anytime.

​“Speaking for the industry, Afterpay has had an impact on young people taking credit cards,” Mr Nicoll said. “As a perception thing, Afterpay is here and now and you aren’t on an ongoing credit contract. It’s also really seamless in comparison to having to apply for a credit card.”

​The cheaper servicing cost is another main reason why young people are making the switch from credit cards to BNPL services.

​Professor Mitchell said the main attraction is often the advertised no interest. “In that sense, they are cleverly positioned as being like lending a bit of money from a friend who would normally charge [no] interest. This is actually a significant advantage, but isn’t always true – as there are sometimes hidden charges and hefty late payment fees,” he said.

​Defaulting on BNPL repayments is more common than people think.

​Afterpay for instance, earns 24.4 per cent of its profits from late fees. The BNPL provider announced in its annual 2018-19 report that the amount received as fees for defaults, totalled $28.4 million, a 365 per cent windfall over 2016-17 levels of $6 million.


Just like credit cards, BNPL services can affect a user’s ability to borrow money and can hurt home loan applications.

Rory Matthews, CEO and Managing Director, for Asia Pacific at Compuscan credit bureau, said that most young people don’t realise that lenders closely follow the daily spending habits of potential loan customers and that BNPL purchases are being put under the microscope.

“Safe to say, application data and bank statement data would account for 90% of the credit decision,” said Mr Matthews.

The importance of saving is being emphasised by banks.

​“One of our target markets is actually young people and getting them into their first home. It’s about demonstrators demonstrating an ethic of saving which is really important,” said Mr Nicoll.

“When you have a history of basically going to the point of sale and driving credit, it’s much harder to get credit because obviously you are using credit to fund a lifestyle, rather than actually showing you can save to create a lifestyle, which are two different things.”

​Amy only discovered the impact of Afterpay on her credit score when she went for a car loan and had difficulty borrowing money as a result of her Afterpay purchases.


Financial experts suggest education by banks and educators could be the solution to young adults’ problem with lending facilities and managing debt.

Mr Nicoll described the education system around finances as “very very poor”.

“I think banks and schools and basically everyone hasn’t done enough to train people to understand what these things mean,” said Mr Nicoll.

One topic Australians need to be more educated on is credit scores.

“The way the Australian legislation is written has very much been for the protection of the consumer which is appropriate, but I don’t think people have been educated to know what your credit score actually means,” said Mr Nicoll.

“Historically banks and educators have been very very poor at explaining if you buy these things it will impact your credit score, and if you have too many credit enquires it could indicate a propensity to default.”


​Consumer advocates have pushed for a crackdown on BNPL services, claiming that vulnerable people are falling prey to BNPL services.

​ASIC’s consumer research commissioned in REPORT 600: Review of buy now pay later arrangements found that one in six BNPL users believed they had been adversely affected in some way by using a BNPL service. More than half of them were between 18 and 34.

*Click the graph to visualise the data.

Last year’s Senate inquiry into BNPL services found that regulation had not matched the rapid growth of the BNPL sector.

It issued 20 recommendations and called for the government to work with ASIC in the regulation of BNPL services, in addition to developing an industry code of practice. But credit checks and being covered by the National Credit Act were not among the recommendations.

Financial experts believe more regulation is needed of BNPL services.

​”I’m hoping for regulation, because with education and regulation people will make better choices,” Mr Nicoll said.

​“I think regulation would help. It would slow them down and that seamlessness would disappear, and that’s what they are worried about, because if they have to make an inquiry on serviceability which is one of the requirements under responsible lending on consumer debt, then their entire process is in trouble.”

​Mr Matthews said that while he agrees that increased regulation of BNPL services is necessary, the way credit reporting is conducted as a whole will need to be reformed.

​”Yes, I do think buy now pay later products should be included in Comprehensive Credit Reporting. However, I also think the manner in which credit reporting bodies operate is a model that has not changed in 40 years and is actually becoming less relevant in credit decisions.”


After two years of financial stress Amy has decided to cancel her Afterpay account and delete the app.

She is one of the lucky ones. Her family was able to help her make her repayments and move back into her family home and live rent free. But many other young people are not this fortunate.

​Afterpay was contacted for comment, but no response was received.

— Lilli Thompson @ThompsonLilli

Amy* provided her details to Central News, however her name has been changed to protect her privacy.