Financial Experts Are Calling Out Buy-Now-Pay-Later Companies For “Slick” Marketing Tactics

"They’re lending companies that sell you debt for something as small as a pint of beer."

afterpay klarna zip photo

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As we head into the festive season — traditionally filled with gift-giving, parties, travel and other things that make your heart sing but your bank account groan — the idea of chucking everything on Afterpay and dealing with it in the new year can be particularly tempting.

But as buy-now-pay-later (BNPL) ramp up their advertising campaigns in the lead up to the festive season, experts are warning we could end up with a financial hangover.

It’s hard to scroll through social media without seeing either a targeted ad, or a sponsored influencer post promoting brands like Afterpay, Klarna and Zip. But experts are slamming this as a morally questionable choice in the lead up to Christmas, especially considering the disastrous financial impacts many of us have felt throughout the last year of the pandemic.

“There are serious ethical questions about buy-now-pay-later encouraging people to spend money they may not be able to pay back, particularly at times people could be at their most vulnerable,” James Hunt, Campaigns Lead at Financial Counselling Australia, told Junkee.

While the BNPL industry — which has never faced the same strict regulations as traditional credit cards — has been a staple among young people for years, a bigger ethical question has been raised as brands like Afterpay have pivoted from helping cover large purchases to helping cover your beer at the pub.

“It’s understandable why people may use these apps, because socialising is an important part of life. Particularly as we adapt to life out of lockdown, many people will want to enjoy eating out again. What’s most important is that buy now pay later is properly safeguarded by regulation, to ensure the credit is loaned in a safe way,” Hunt added, warning that the urge to Afterpay social outings like lunches and nights out can be dangerous.

“As BNPL increasingly moves into day to day living costs, it’s critical that the government’s regulation keeps up with the pace of growth. At the moment, fintech innovation is massively outpacing our laws, leaving consumers vulnerable. BNPL is credit and it should be regulated as such.”

While it’s easy to brand BNPL services as a lifeline for those suffering from financial insecurity — allowing people to pay off larger purchases over time without the 20 percent interest of a credit card — it’s important to note that the normalisation of going into debt for something like a singular drink is not healthy.

“We’re calling out the buy now pay later industry’s slick marketing of their products as budgeting tools. They’re lending companies that sell you debt for something as small as a pint of beer,” Hunt explained. “Taking out BNPL debt on food and beverages can be risky, as they’re regular and essential expenses. On a night out, it could be tempting to keep spending and putting all your transactions through via BNPL. The next morning you could find yourself with a massive financial hangover.”

“Safer” Than Credit Cards

Paul Waterson — the CEO of Australian Venue Co, a major hospitality group currently rolling out Afterpay at 180 venues — claims it is a “safer” option than a credit card, but not everyone agrees.

“Consumers have been using credit cards to pay in hospitality venues since the 80s. And when we looked at Afterpay, as a tool, we felt it was as safe or a safer option for consumers to use as a budgeting tool that doesn’t involve large interest,” he told the ABC.

But while Afterpay doesn’t charge interest, as many as one in five BNPL users have to cut back on essentials to meet their payments without paying late fees, according to ASIC.

Not to mention, BNPL companies aren’t covered under the same safe lending laws that credit cards are. Basically, there’s no requirement to actually ensure you have the means to pay back your debt, unlike a traditional credit card.

“There are serious ethical questions about buy now pay later encouraging people to spend money they may not be able to pay back.”

“BNPL gets around this because of a gap in the law that means they don’t have to apply safe lending laws because they don’t charge ‘interest’. Instead, people end up paying fees (such as late fees, account keeping fees and other hidden costs) that cost as much or more as traditional interest payments on a credit card,” Hunt explained to Junkee.

Financial counsellors are already reporting clients using these services for small essential purchases like groceries, so it’s not too much of a stretch to imagine people doing the same at bars.

“Financial counsellors are reporting that some of their clients buy groceries and essential food items via BNPL, because they can’t afford the full amount. This means some people might purchase meals at pubs and restaurants on BNPL due to the same issue,” said Hunt. “We know financial counsellors are also seeing people who are overcommitted with multiple accounts — some as many as 12 at one time. It’s so frictionless to access BNPL online. Afterpay moving into food and drinks just makes it even easier for people to end up with unmanageable debt.”

Financial Counselling Australia recommends “carefully considering your financial situation” before using BNPL companies.

Lavender Baj is Junkee’s news and politics reporter. Follow her on Twitter

Anyone who’s struggling with BNPL debts or who can’t afford life’s essentials can contact a free financial counsellor at the National Debt Helpline on 1800 007 007, via live chat on their website.