Buy now, pay later (BNPL) is comfortably the most common route for people taking on credit/debt for the first time, according to credit bureau Centrix.
Data included in the latest monthly Centrix Credit Indicator shows BNPL attracted just 0.3% of new to credit consumers in 2016. By 2021 this reached 46.7%, and is at 32.5% this year.
Centrix notes people new to credit are consumers who are taking on credit/debt products for the first time, helping them build their credit profiles.
"In 2023, 160,000 consumers opened their first credit products, with another 110,000 consumers new to credit in 2024 to date. Since 2018, BNPL has been the most popular first credit product, ahead of telco and utility accounts. 32% of new-to-credit consumers in 2023 and 2024 chose BNPL as their first credit product, although this has declined from its peak in 2021."
Credit cards overhauled
The Centrix data shows the most popular new to credit product in 2016 was credit cards, the product of choice for 24.5% of people taking on credit for the first time. This year credit cards are down to just 5.9%. Reserve Bank figures show the weighted average interest rate on personal interest bearing advances for credit cards was 19.7% as of August.
At 24.6%, the second most common first credit experience this year is telco services, Centrix says.
Whilst BNPL services in some shape or form have been around for centuries, the fintech version, often via a phone app, has taken off over recent years. These BNPL services allow people to buy and receive goods and services in-store or online immediately, but pay through installments over time. While there are no interest charges, there are penalty fees for late or missed payments.
The sharp interest rate increases from 2021 to 2023 hit the BNPL fintech model hard, leading to mergers and the demise of many BNPL service providers. That's because higher interest rates meant their funding costs rose.
The BNPL service operators pay merchants at the point of sale, and then collect money from consumers making the purchase. There's a funding gap while the installments play out, plus any bad debts to cover. (There's more on this here).
Centrix says BNPL arrears dropped to 6.1% in September, their lowest level since 6% in January 2022. They were as high as 10.5% in March 2023.
The debt equivalent of alcopops?
BNPL's popularity as a first credit product highlights its success in attracting young people, arguably making it the debt equivalent of alcopops. Centrix last year said of some 260,000 people under the age of 25 who were "credit active," 57% used BNPL, making it this group's most common first credit experience.
The Government recently decided to exempt fintech BNPL service providers from default fee provisions in the Credit Contracts and Consumer Finance Act (CCCFA) with no conditions attached, a move advocated by Regulation Minister David Seymour.
This came after the Ministry of Business, Innovation and Employment pointed out there are just three BNPL fintech companies left operating in New Zealand; Afterpay, Klarna and Zip. And after Commerce and Consumer Affairs Minister Andrew Bayly told Cabinet he'd heard concerns from BNPL providers that complying with the CCCFA’s default fee provisions would constrain how they calculate and charge customers default fees to an extent that could put their businesses in jeopardy.
'Concerning'
Money Sweetspot co-founder and CEO, Sasha Lockley says Centrix's new to credit insights are concerning.
"It’s important that people new to credit create good habits, because these habits last a lifetime," says Lockley.
"With David Seymour recently vetoing the CCCFA regulations for BNPL fees, currently, the Government do not seem to be backing Kiwis on developing these good habits."
"To help New Zealanders who are only just starting out with their first credit products, we need guardrails in place,” says Lockley.
"Without fostering an understanding around BNPL products and services, and enforcing effective regulations to mitigate the effects of them, we are setting the next generation up for failure."
Money Sweetspot says it provides financial reset debt consolidation loans to help people reduce debts.
*The chart and table below come from Centrix.
8 Comments
A product that doesnt charge interest to consumers and has low default rates is somehow bad, while credit cards that charge 22% interest and higher default rates are good?
I think the young people using Afterpay and paying it off over 4 weeks at zero interest are far savvier than those using the perpetually compounding credit product that charges 22% interest and $250 a year account fees. Credit cards are dead technology - the only people still using them are the financially desperate, and the wealthy looking to accumulate frequent flier points. Young people dont want a credit card - and that's a good thing.
Thank you for pointing this out. BNPL is interesting as it enables a sale when none may exist. It represents a 'cost of sale' to the vendor. In that respect, it's no different to a discount or promotion.
The irony is that the ruling elite and the boomers have no issue with young people taking on mountains of debt if it serves their own interests.
Loans are bad for mankind and we've been warned for a long time:
The Biblical doctrine of usury rests primarily on three texts: Exodus 22:25; Leviticus 25:35; and Deuteronomy 23:19-20. Exodus and Leviticus prohibit loans of money or food with interest to a needy brother or sister or even a resident alien. Deuteronomy forbids taking interest from any person.
Imagine were house prices would be if there were no mortgages...
Does the Bible have anything to say about creating money from thin air? If most people understood it properly, they might see at as somewhat of a sin.
Lending under Islamic law is more nuanced. The most fundamental principle in Islamic finance is the prohibition of riba, which is generally interpreted as interest. This prohibition is based on Quranic verses and hadith that condemn the practice of charging interest on loans. The rationale behind this is to prevent exploitation and promote social justice.
The Catholic church once defined usury as interest of any kind. The School of Salamanca (see https://en.wikipedia.org/wiki/School_of_Salamanca#Interest_on_money) refined this to recognise concepts like opportunity cost, and usury as a sin narrowed to refer more to loans made to people who obviousy can't repay them. I think that is a helpful distinction. Not all debt is usurious.
On the other hand, there is the parable of the wicked servant, who buried his master's investment so that it wouldn't even earn interest.
Though, the wickedness was in the not using the resources given, rather than the lack of interest (the servants who returned 10x and 5x through business were greatly rewarded).
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