Rise in credit card use puts a stranglehold on struggling BNPL sector

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Despite rising interest rates and inflation concerns, household spending remains elevated and credit cards have been the main benefactors – not the struggling sector buy now pay later.

Compared to September 2021, credit and charge card usage increased by approximately 30% or $7.56 billion according to the most recent data from the Reserve Bank.

Debt has increased slightly from around $17.9 billion in August 2022 to just over $18 billion in September 2022, implying that many card users are paying off their balances on time.

The value of debit card transactions also increased by 26% or $10 billion over the same period.

The total value of monthly credit card purchases eclipsed pre-Covid levels to reach more than $32 billion in September despite consumer confidence close to recession.

Evaluating growth from the June quarter to the September quarter, credit card spending grew from less than $93.5 billion to more than $95.7 billion, a growth of almost 2 .5%.

The Buy Now Pay Later (BNPL) platforms, on the other hand, have tended to stagnate, despite annual growth rates of 20% in the retail trade according to the ABS.

Figures from payments expert Grant Halverson show that BNPL’s spending in the Australia-New Zealand market rose 4% in the September quarter, from 7% in the previous quarter.

The rest of the world (excluding the United States) totaled $155 million, down 3%.

BNPL also lost active users.

For example, as of June 30, the popular BNPL Zip platform had 12 million active users worldwide, up from 7.4 million as of September 30 in its quarterly report.

Australia alone lost around 900,000 in the quarter, or 28% of its active user base.

An active user is defined as anyone who has made a single transaction in the last 12 months – similar to credit cards.

According to estimates from RBA data, buy-it-now, pay-later (BNPL) platforms account for around 1.5% of all payments in Australia.

In the United States, BNPL’s annual transactions are around US$24 billion, compared to around US$4.6 trillion for credit cards.

BNPL platforms had their halcyon days when interest rates were low and many people put credit cards aside because international borders were closed.

Now that’s all changed, and higher interest rates are bad news for payout platforms, according to Halverson.

The former Citi and Diners Club executive said that due to rising interest rates, financing these deals is expected to cost Australia’s Zip platform an additional $45-55 million this fiscal year.

“BNPL derives most of its revenue from merchants, so they cannot easily recoup the cost of rising interest rates – they have to fund the gap between paying merchants and being paid by the consumer,” he said.

BNPL platforms typically charge merchants 4-6% of the purchase price when customers use their remittance service.

The Reserve Bank has banned traders from passing this on to the consumer.

An RBA survey in 2021 found that half of users would drop BNPL if faced with a surcharge; Another 10% said they would cancel the transaction and not make a purchase.

Rising credit is not necessarily a good thing

The increase in the use of credit cards has coincided with a rise in interest rates and, consequently, a reduction in savings reserves, with the savings rate close to pre-pandemic levels.

BNPL platforms claim that they are better than a credit card because they technically do not charge interest.

Zip co-founder and chief executive Peter Gray said it’s a way for shoppers to smooth out their bills throughout their payment cycles.

“I think we can expect to see customers continue to turn to credit and credit cards in times of high inflation and rising costs of living,” Gray told Savings.com. to.

“But those who use this form of credit and continue to extend their debt by paying only minimal repayments, will continue to incur huge interest bills, increasing the amount they owe and the time it takes to pay it back. “

However, credit cards usually come with 55 days interest freea day less than the four-weekly installment program widely used by BNPL platforms.

Additionally, if late fees are incurred – typically $10 per installment – when combined with a maximum total purchase of $1,000, this can be more than credit card interest on an annualized basis.

Consumer Action Law Center CEO Gerard Brody said the BNPL is not necessarily better than a credit card.

“The comparison should be the cost when you don’t repay BNPL on time and don’t make your full credit card payment on time,” Brody told Savings.com.au.

“The huge risk with BNPL is that there are not the same legal guarantees that apply compared to credit cards, in particular responsible loans.

“That means there’s a higher risk that you’ll receive credit that you can’t afford to repay.

“It can be very difficult to compare BNPL and credit cards, but national credit laws apply to credit cards.”


In a speech Wednesday night, Reserve Bank Deputy Governor Michele Bullock said lower-income households would be hardest hit by rising costs of living and interest rates.

“We estimate that households globally have accrued more than $250 billion in additional savings during the pandemic. Most of this saving was made among households at the upper end of the income distribution, reflecting, in part, constraints on the consumption of discretionary services,” Ms Bullock said.

“So while lower-income households with weaker reserves are likely to reduce their consumption, some households could draw on their savings to support consumption in the face of rising interest rates and cost-of-living pressures. .”

This is demonstrated in the latest data on the household savings rate, which fell to 7.9% in September from highs of over 20% during the pandemic. A downward trend is expected in the next data release.

BNPL revenue declines

Pocketbook, popular zippered budgeting app a few months ago in a quest for “sustainable profitability” – it recorded a loss for the year 2021 of more than 650 million dollars.

Still, Zip CEO Larry Diamond was optimistic in the platform’s latest report.

“Zip’s simple, fair and easy-to-use product becomes even more important to customers and we are well on our way to disrupting the traditional credit card model and putting people in control of their financial lives,” said Ms. .Diamond.

Australian company Openpay posted a pre-tax loss of more than $82 million last year and closed its UK operations.

In August, CommBank had to write down $2.3 billion on its stake in Klarna – BNPL posted a loss of $56 million in Australia last year.

After being acquired by Twitter Founder Jack Dorsey’s Block in 2021Afterpay posted a 3% decline in full-year earnings to US$150 million in September.

Regulation in sight: Is BNPL a loan by any other name?

In the United States, Afterpay offers a new product that charges interest.

Although costs vary between plans and consumers, a typical loan of $1,000 over 12 months would see a consumer repay $111.40 in interest – with an interest rate of 21% per annum, which is higher to many credit cards.

This comes as US regulators moved to regulate the BNPL sector in SeptemberNew Zealand pledging to do the same by the end of the year.

The strict definition of “regulation” varies from country to country, but so far BNPL platforms have been able to circumvent credit regulations because their lending terms are shorter than a certain time frame.

In Australia, that is 62 days, and regulations mean having hardship provisions and doing credit checks.

BNPL platforms have a code of conduct, to which many large platforms are signatories, but it is not mandatory.

It should be noted that Zip’s “Money” product is regulated by Australia’s National Consumer Credit Protection Act of 2009.

Mr. Gray did not explicitly support blanket regulation under the law, but said Zip supported “fit for purpose” regulation.

“We believe there should be appropriate safeguards to ensure consumer protection without stifling innovation,” he said.

“Zip is well positioned for BAU [business as usual] furthermore, fit-for-purpose regulation should ensure that BNPL products fall under the law.


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