BNPL ‘crucifying cash flow’, broker warns

Afterpay, which launched in late 2014, is now used by over 3.3 million Australians and is just ahead of Apple Pay, which is used by over 3.2 million people and launched in 2015.

The report also noted that Apple Pay is poised to overtake Afterpay during the next few months, with usage increasing.

Apple Pay has increased its presence in the Australian marketplace significantly from a year ago, up from 11.1 per cent of Australians in February 2022 to 15.2 per cent in February 2023. In contrast, Afterpay has increased from 14.1 per cent of Australians a year ago up to 15.6 per cent in February 2023, the Roy Morgan report said.

The data also comes following the sale of Afterpay to US payments technology provider Block in February 2022.

Alongside these digital payment service market leaders, PayPal and BPAY are used by far more Australians but haven’t experienced such rapid growth in recent years.

The rise in ‘easy credit’ has continued to raise concerns over the impacts on businesses in a fairly unregulated sector.

Despite rising popularity, buy now, pay later (BNPL) has not been regulated under the National Consumer Credit Protection Act 2009 as providers do not charge interest on repayments and providers do not hold an Australian Credit Licence (ACL), however, regulatory intervention is being pushed with a review underway.

Setback for small businesses

Speaking with The Adviser, managing director and founder at Professional Lending Solutions Phil Verheijen said accessing cheap credit through such schemes can be a setback for small businesses.

While it seems like easy credit at the time for new stock, products, or for debt, Mr Verheijen said the loan is often repaid at a “very accelerated rate”.

“They might take 40 per cent of your eftpos turnover to pay for it. If you’re running a business that doesn’t actually have that much margin. You’re going backwards," Mr Verheijen said.

“It’s crucifying these small businesses.”

Mr Verheijen also noted some small businesses had gotten into “bad habits” during the pandemic and allowed their ATO debts to run hot.

“The amount of inquiries I’m having for people to try and clear that because the ATO is now coming down hard.

“[The ATO] are starting to garnish, which means they can actually take your money out of your bank account to get what they’re owed.”

In fact, Banjo’s SME Compass report for 2023 revealed one in five businesses have built up a tax debt during the pandemic.

While it can be appealing to access quick cash to pay debt as a small business, Mr Verheijen recommended that most of the major banks have quick business loans that can be more beneficial.

NAB has a quick biz loan, and CBA has something similar which are one, two or three-year repayments with smaller interest rates (or fees) which are much more sustainable, he said.

[Related: MFAA calls for BNPL to be regulated]