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Buy Now Pay Later Services and how recent changes may impact your credit report

If you are reading this, you are more than likely aware that your credit report plays a very important role in your life. Get it right, and the world’s your oyster, get it wrong and you are set to survive whilst others around you thrive.

The information in your credit report can have a significant impact on your relationship with potential creditors, affecting your ability to get credit and/or the terms under which credit may be offered to you. Therefore, it is important that you are aware of the many variables listed on your credit report and of any changes to what might be reported, as these could very well impact you now, and in the future.

Without doubt I would definitely want to know of any changes in the information that the Credit Reporting Bureaus are making, when it happens, and how it might impact me.

But how do I find out this information?

Well, you’re in luck, here at Fix Bad Credit, we do the work so you don’t have to. We are constantly reviewing and investigating any changes, large or small, that might impact upon your credit report. Proactively ensuring that even the small changes, which are more than likely to go under the radar for the majority of people, are bought to the attention of our community.

For example, as of the 24 July 2021, Credit Reporting Bureaus will be changing the way they report on Buy Now Pay Later (BNPL) services on your credit report. But what does this mean to you?

What is Buy Now Pay Later?

BNPL services, such as Afterpay or ZIP (see full list below), provide the account holder with an option to purchase a product or service at a shop or online, receive the good or service instantly, and then pay it back in agreed interest free instalments over a period of time.

In the past people may be familiar with lay-by services. These allowed consumers who were unable to acquire the full price for a product to make an arrangement with the shop to put the product aside for them for an upfront fee, they would then make instalments paying for the item. Once the total amount had been paid in full, then the consumer could collect the item.

A BNPL service is loosely similar to this agreement, with some differences. It introduces a 3rd party to this agreement being the BNPL service provider. The service provider will agree payment instalments with the consumer and once approved they will pay the shop for the product or service so the shop releases the product to the consumer immediately, and then they will collect the instalments over an agreed period of time. So effectively the main difference is the advantageous position for the consumer who now can receive the product or service upfront.

Are Buy Now Pay Later services a new thing?

BNPL services were first introduced to Australia in 2016. Since then the BNPL industry has seen significant growth and it is proving to be an extremely popular payment method in the Australian consumer lifestyle. This growth has been driven by numerous factors, including:

  • Growing consumer confidence in the products, as the Buy Now Pay Later concept is no longer something that’s new and unknown.
  • As consumer confidence has grown more retailers and service providers have become accepting of this method of payment to complete a transaction meaning it is more readily available.
  • A changing attitude by consumers towards credit card debt.
  • Change in behaviour – we live in a society with an increasing thirst for instant gratification when we want something we want it now. BNPL services certainly cater for that.

 

How popular are Buy Now Pay Later services in Australia?

In 2020 alone, Australian’s spent $50.46 billion in online shopping and one in ten online or e-commerce transactions over that period used a BNPL service.

 

As always, various reports provide different statistics, but one report produced by the Australian Securities and Investments Commission (ASIC) in November 2020 stated there were 6.1 million BNPL accounts in Australia in the financial year ending 2019. This represents approx. 30% of the Australian adult population, although it is common for individuals to have more than one BNPL account.

 

The Reserve Bank of Australia (RBA) in March 2021 released a bulletin reporting that by December 2020 two of the big players in the BNPL services industry in the Australian marketplace, Afterpay and ZIP had almost 6 million accounts between them.  Comparatively, there were 13.3 million credit cards in Australia as of May 2021. Credit cards were first introduced into Australia in 1974.

Who is using Buy Now Pay Later Services in Australia?

To keep it consistent we refer to the Reserve Bank of Australia (RBA) report from March 2021 again, which states 55% of BNPL accounts are held by people under the age of 40.

Aussies lead the world!

Unfortunately, this is not an Olympics update. However, if the use of BNPL services were an Olympic sport Australia would take home the Gold! According to recent studies 48% of Australian Merchants offer BNPL services compared to 20% in the USA and 11% in the UK and 33% of Australian’s consider BNPL their preferred method of payment.

How does By Now Pay Later work?

All BNPL services utilise the Fintech space by providing digital access with a choice of either using online (browser) access and/or an apps to both apply and to manage your account. Once you have been approved by your choice of service provider you link your debt or credit card to that account and are given an account limit and a repayment schedule.

When you want to use your BNPL service to acquire any goods or service at a merchant that accepts it, you simply select at point of checkout your BNPL service as your payment method. In store you may be sent a code to your phone or email. If you are shopping online you may be redirected to your BNPL’s website to complete the purchase. It’s all a very user-friendly process, that once used the first time, you will feel comfortable with.

What Buy Now Pay Later services are available In Australia?

At the time of writing there were 12 BNPL service providers in Australia, listed below in alphabetical order.

To date, BNPL arrangements, including late payments have not been reported. Although if you default on the arrangement, it could have been placed on your credit report. However, as mentioned earlier, Equifax has reported that, as of 24 July 2021, BNPL accounts will be added to credit reports. If you are one of the many Australians who use a BNPL service you can now expect to see two new BNPL account types reported in your Equifax credit report.
1. BF Facility (BNPL Facility). The account is the credit. e.g the account has an approved limit of $1,000 for the account holder to use when and where they choose.

2. BT Transaction (BNPL Transaction). This is the report of an actual arrangement where the BNPL service provider agrees to the purchase of that specific transaction. e.g the client may be at JB HIFI and wants to use $750 BNPL to buy a new TV, and requests the transaction be approved by the BNPL service provider.

What this means is that other lenders that review your credit report will be able to see that you have a BNPL account and it could affect your ability to get a credit card or a loan. This is because other lenders you approach may look at your BNPL purchases when working out how much you can afford to borrow, even if you pay back your instalments on time.

What does this mean?

BNPL services offer the convenience of being able to take home goods and services that you might not immediately have the money to pay for. However, like any form of credit you need to be very careful that you use the BNPL services responsibly and keep in control of how much you borrow so that you do not take on debt you cannot repay.

With the change to reporting, BNPL can have a lasting impact on the health of your credit and that small $500 purchase may have a significant impact on your ability to get out further credit, such as a home loan or to finance a new car.

If you are planning a significant purchase such as a new home or car, it would be wise to consider if you really need to use BNPL to fund that new TV or dress, and instead there may be longer term benefits in holding off on the purchase or paying for it in cash.

If you need assistance with your credit report for BNPL , or any other reasons.

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