Buy now, pay later (BNPL) services that offer interest-free instalment payments have grown rapidly in recent years, particularly amongst the young. Offering a cheaper way than credit cards or overdrafts to finance large purchases, Australians have been particularly enthusiastic for BNPL, leading it to become a mainstream payment method both online and in physical stores.
But this form of financing now finds itself among the most vulnerable segments as economic pressures accumulate, with the younger population more likely to be hit by unemployment and falls in disposable income.
Complicating the picture further is the fact that some BNPL providers have been less stringent in their checks of creditworthiness than others. A large minority of those who utilise BNPL are in the low-income category, notes Verisk Financial Research in its newly published market update on Australia, covering payment cards (issuing, acquiring, processing, networks), digital payments and consumer financing along with much more through detailed data and informed commentary.
"The increase in online spend should prove a mitigating factor," observed head of research David Hickey, "Over a tenth of online payments use BNPL as a payment method. Afterpay alone, by its own estimates, processes more than ten percent of all online retailing."
Meanwhile, quite apart from the pandemic, regulatory moves could shake up the Australian market to the benefit of local network Eftpos, with the central bank warning acquirers to allow merchant choice over how transactions are routed on dual-network debit cards.
Mandated routing may emerge as a result, which would spell a major boost for the domestic Eftpos scheme.There are 43.2 million debit cards in Australia. Contactless technology was first rolled out by the international schemes, so that any time cardholders chose to tap, the transaction was automatically routed through that network rather than Eftpos.
As ever more consumers chose to use contactless, Eftpos lost a significant share of the market. The situation also led to higher charges for merchants as interchange is typically higher on the international schemes. As things stand, some acquirers offer only a basic version of least-cost routing, which doesn't choose the network based on the size of the transaction and thus fails to take account of cost savings that could be availed of.
Debit cards in Australia are typically dual branded with the domestic scheme Eftpos and either Visa or Mastercard, which allow a domestic POS payment to be processed via either Eftpos or one of the other debit schemes (Debit Mastercard or Visa Debit). Eftpos has traditionally dominated in terms of transaction volume, but that situation was reversed in recent years with spending shifting to the international networks, Mastercard and Visa.
The new report on Australia is one of 72 individual market reports, each with unique profit pool metrics and analysis published by Verisk Financial Research. Leveraging data reaching back to 2010 – and forecasts up to 2022 – the unique data set features over 250 metrics per market.
Each update explores the cards and payments industries, providing concise commentary and deep data on the latest market trends and regulatory developments, with insights and profiles covering the key market players including banks, issuers, networks, acquirers and processors.
View the Table of Contents.
Each Verisk Financial Research report takes a consistent approach, with clear-sighted commentary and in-depth data providing comparable insight across markets. The Australia report is available for subscribers to download now, or to order online.