2020 was many things, one of which being the rise to prominence of the Buy Now Pay Later (BNPL) schemes. As consumers are increasingly pushed to spend their hard-earned cash to support businesses and the local economic recovery, many find themselves devoid of the necessary financial liquidity required to keep up.
The problem BNPL services strive to solve is easy enough to understand. Users are enabled to spend a certain amount of money that they may not currently have, by delaying payments into the future. It’s like lay-by, except you get the product today while paying it off in multiple interest-free instalments down the road. BNPL can seem like an excellent alternative to credit or (non-existent) savings at the time. However, it may risk causing major financial issues as reality bites.
The Danger Lies in Missing Payments
The BNPL sector is mostly unregulated, with the major players aggressively expanding their services to major retailers globally. BNPL has predominantly resonated with younger customers, targeting the major fashion retailers. In the 2018-19 financial year, users under the age of 35 accounted for 61 per cent of completed transactions and an even higher proportion of late payment fees. The critical takeaway is that BNPL schemes encourage consumers to spend money that they don’t actually have.
The same research from ASIC found that over 20% or 1 in 5, BNPL users miss the required payments, and incur late fees that quickly add up. It’s even more concerning to note that “some consumers who use buy now, pay later arrangements are experiencing financial hardship, such as cutting back on or going without essentials — for example, meals — or taking out additional loans, in order to make their buy now, pay later payments on time.”
Nonetheless, making impulse purchases without adequately assessing the potential financial implications is not a good idea. BNPL makes the buying decision and process extremely easy. However, it also enables a domino effect of debt if users cannot manage their commitments responsibly. Applying for a BNPL scheme may involve a credit check, and missed payments will undoubtedly impact a customer’s credit score.
Fees, debt and financial stress resulting from BNPL schemes may also significantly impact employers. Financial worries will inevitably impact an employee’s ability to do their best work and in turn, an employer’s bottom line. According to the ANZ Financial Wellbeing Report, financially stressed workers spend almost 10% of their paid working hours thinking about financial issues. This means that even though employees are showing up to work, they’re not truly working at their full capacity. AMP has also found that financial stress led to increased employee turnover and sick days being taken, costing employers up to $31 billion every year!
Paytime – a Safer Alternative to BNPL
Almost six million Australians are living paycheck to paycheck. Often, their next payday timing leads them short on cash when hit with a sudden bill or emergency expense throughout the month. For most of these workers, the solution is to use a credit card, use funds from important savings accounts or purchase goods and services using BNPL services – kicking the can down the road.
Paytime is an Earned Wage Access app, allowing employees to access their earned pay at any point of the pay cycle, without waiting until their next payday. When an unexpected bill or expense arrives, employees can access a portion of their earned wages to cover any shortfall instead of turning to credit or a payday loan or risking their account being overdrawn and incurring hefting bank fees. Adopting a flexible pay solution such as Paytime allows employees to spend a part of the money they’ve already earned instead of money they haven’t. It’s not a loan, as its earned wages, and there’s never any interest. We all work everyday and we all have expenses everyday so why should employees have to wait to get paid once (or at best twice) a month!
If your business wants to enable your employees to improve their financial wellbeing, workplace engagement and productivity, contact Paytime today to arrange a free consultation.