What do tennis player Nick Kyrgios, DJ and influencer Flex Mami, Masterchef judge Melissa Leong, the Block judge Darren Palmer, DJ and professional surfer FISHER, and beauty influencer Romi Singh have in common?
They’re all featured in buy now pay later company Zip’s star-studded Australian campaign, ‘Can I Zip it?’.
Accompanied by an upbeat EDM remix of a classic song, colourful graphics and live-stream style videos that are common on social media, it’s clear Zip is after the attention of young people.
The campaign is another recent addition in an increasingly high-profile line up of buy now pay later ambassadors.
Klarna partnered with A$AP Rocky for their ‘drop your lockdown look’ campaign, which urges customers to spend big as they head out post pandemic lockdowns.
Afterpay’s ‘Rebel-splained’ series features Rebel Wilson equating buy now pay later to being like eating “the whole tub of ice-cream and spreading the calories over six weeks.”
Sounds great, right?
But sleek celebrity campaigns distort the reality of buy now pay later: that it’s a form of credit that can cause harm – and therefore it should be treated as credit under the law.
How does it work?
Buy now pay later can now be used for just about any purchase, from make-up to dentistry to shares in investment properties. The products are yours to enjoy, while you pay them off in interest-free instalments.
But there’s a few things to keep in mind:
- Buy now pay later is credit, which means you take on debt when you use it.
- It’s easy to spend more than you can actually afford and, in some cases, your credit rating can be affected.
- While buy now pay later providers don’t charge interest, a significant portion of their income comes from customers paying account keeping fees and late fees.
- The extra fees can add up quickly, particularly if you have multiple accounts.
- Buy now pay later companies charge merchants for using their service. Often, customers foot the bill for the increased cost of the goods.
Does it cause harm?
Yes, unfortunately debt acquired through buy now pay later is causing significant harm.
Last year’s report by ASIC, Australia’s independent consumer watchdog, found one in five people had missed payments on buy now pay later debts. Out of these people, almost half were aged between 18 to 29.
Concerningly, one in five people went without essential items, such as food, to afford a repayment.
These statistics reflect what financial counsellors (professionals at community-based organisations who provide free advice to people in financial hardship) are noticing through their work. One financial counsellor assisted a woman in her twenties with six buy now pay later debts, whose income couldn’t cover the repayments and her living expenses.
Luckily, the financial counsellor negotiated with the company and they waived the late fees. They also put some payments on hold, so the woman had a chance to get financially back in control.
What can be done?
Buy now pay later is credit, and it must be treated as such. Because these companies charge fees and not interest, they currently fall outside of Australia’s credit laws.
Celebrity endorsements can’t change the fact that these companies are exploiting a legal loophole which means they don’t have to comply with basic consumer protections, like the requirement to lend responsibly.
The harm it’s causing shows we need an even playing field when it comes to credit products. However, the current situation is far from even.
Talk to your friends, family, and other people in the Tilly Money community about this issue. If more people are aware of the pitfalls of buy now pay later, less people will find themselves with unmanageable debt.
If you’re considering using it, look carefully at your financial situation and think about what you can afford. The question shouldn’t be “can I Zip it?” but “should I Zip it?”.
If you’re struggling with buy now pay later debt, the National Debt Helpline have an online guide about how to get it under control.
You can contact a free, confidential and independent financial counsellor at the National Debt Helpline on 1800 007 007 or through live chat on their website, 9:30am-4:30pm weekdays.
Words: Georgia Lenton-Williams (Financial Counselling Australia)
