BNPL customers more likely to use wage advance lending platforms

New data from open banking provider Frollo revealed BNPL usage grew from an average of $417 per month in the 2022 March quarter to $452 in the December quarter. 

In that time there were eight consecutive cash rate rises from the Reserve Bank.

Of the 33,050 Frollo users, almost half (43%) used BNPL at least once last year.

The data found the average spend per month amongst BNPL users was $439 which includes repayments, fees, and penalties. 

BNPL users also turned to pay advance services, otherwise known as pay on demand services.

For a fee, a pay advance service lets you access a portion of your pay cheque ahead of payday. These short term loans can be used to cover unexpected expenses such as car repairs.

These loans are then automatically repaid once the paycheque comes in.

According to Frollo, pay advance transactions grew from 1.4% in the first quarter of 2022 to 2.7% in the December quarter.

On average, pay advance customers spent $1,331 on repayments, fees, and penalties.

Frollo Chief Customer Officer Simon Docherty said the popularity of BNPL and pay advance services amongst Australians proves the need for lenders to take this into account when providing credit.

“There are a few things for lenders to consider. A customer spending $500 per month on pay advance services might not be able to afford the same mortgage as someone who doesn’t,” Mr Docherty said.

“So it’s essential to get visibility over this spending to reduce risk and lend responsibly.

“Unfortunately, lenders can’t rely on credit scores to get the complete picture, as most BNPL debts aren’t registered, and most of these services don’t perform credit checks.

“New legislation is in the works, but it’s unclear whether this will include reporting obligations.”

Both ING and Macquarie have recently instructed brokers to take into account an applicant's BNPL instalment plans when assessing home loan affordability.

BNPL regulation looms: which model is favoured?

In a discussion paper published in November, the Treasury offered three models for BNPL reform in a bid to protect active users from financial hardship.

The first option proposed would see the code of conduct strengthened, and require providers to ensure a product is “not unaffordable” for a person before offering it to them. This would be assessed through a new affordability test.

The middle-tier option would bring BNPL inside the Credit Act via a tailored version of responsible lending obligations.

The third option, the strictest of the three, would force BNPL providers to obtain an Australian credit licence and meet responsible lending obligations that applies to all credit providers.

CommBank and NAB have voiced their support for Treasury’s second option, with both lenders noting they were also in favour of credit score reporting.

Meanwhile, Westpac backs option three and has called for reforms to disallow consumers paying BNPL debts with credit cards.

Zip's Head of Australia-New Zealand Cynthia Scott said the BNPL industry is ready for regulation.

“We have been working with the Treasury on options for some time and endorse any changes that give consumers greater confidence when using BNPL products,” Ms Scott said.

“The industry continues to grow very rapidly and regulation is vital as it matures. It is important that appropriate guardrails are in place to ensure consumers are protected.”

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