One in six buy now, pay later users are facing financial troubles with some becoming overdrawn, have delayed bill payments or borrowed additional money, according to ASIC. These users are predominately between 18-35 years old.

The first review by ASIC into the buy now, pay later industry also found consumers using programs like AfterPay and ZipPay are under the assumption they can afford pricier items because they can pay them off in increments rather than upfront.

The financial industry watchdog examined six providers, Afterpay, ZipPay, Certegy Ezi-Pay, Oxipay, BrightePay and Openpay.

ASIC found the number of consumers using these financial schemes has jumped from 400,000 in 2015-2016 to 2 million in 2017-2018.

The number of transactions has increased from about 50,000 during the month of April 2016 to 1.9 million in June 2018. At 30 June 2018, there was $903 million in outstanding buy now, pay later balances.

Danielle Press, ASIC Commissioner said, “The typical buy now pay later consumer is young with 60 per cent of buy now pay later users aged between 18 to 34 years old. We found that buy now pay later arrangements can cause some consumers to become financially overcommitted and liable to paying late fees.”

The review of the market found that buy now pay later arrangements are influencing the spending habits of consumers, especially younger consumers.

Providers also use behavioural techniques which can influence consumers to make a purchase without careful consideration of the costs.

Some buy, now pay later providers offer fixed term contracts up to 56 days for amounts up to $2,000, other providers offer a line of credit for amounts up to $30,000.

Press said, “Although our review found many consumers enjoy using buy now pay later arrangements and plan to continue using them, there are some potential risks for consumers in using these products.”

Press noted the exponential growth and the risks identified means this will be an area of ongoing focus for the ASIC.

“One area we will be targeting is where consumers are paying more than they need to for using a buy now, pay later arrangement,” she said.

ASIC supports extending the proposed product intervention powers to all credit facilities regulated under the ASIC Act.

The product intervention powers were introduced as a draft law last month by the federal government.The proposed rules will provide ASIC with a flexible tool kit to address emerging products and services such as buy now, pay later arrangements.

This will ensure ASIC can take appropriate action where significant consumer detriment is identified.  

In response, Afterpay welcomed increased product intervention powers stating “our product is not for everyone and consumer protection needs to be in place.”

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