BNPL is transforming Australian shopping, evolving beyond "pay in 4" to include diverse payment plans and B2B applications. While boosting spending, it also raises concerns about debt stacking and financial distress, leading to significant regulatory changes coming into effect in Australia from June 10, 2025.

"Buy Now, Pay Later" (BNPL) is rapidly transforming from a niche payment method into a mainstream financial product, significantly altering how Australians shop and concurrently raising new concerns about Australian consumer debt at a worrying rate. Initially led by fintech companies like Klarna, Affirm, and Afterpay, the foundational BNPL structure typically involved splitting purchases into four interest-free payments, with the first made at checkout and the remaining instalments spread over several weeks. This "pay in 4" model particularly resonated with Gen Z and Millennials, who expressed wariness of high-interest credit card lending and sought more transparent and flexible financing terms. Indeed, 46% of Gen Z and 47% of Millennials in Australia have utilized BNPL in the last year.

Growth and Diversification of BNPL

The BNPL sector is experiencing rapid expansion and diversification:

  • Greater Payment Plan Diversification: BNPL issuers are increasingly offering more attractive payment terms, such as longer repayment instalments for larger purchases, sometimes with interest, depending on the issuer and the consumer's credit tier. This enables BNPL to fund larger-ticket transactions, moving beyond small-dollar purchases.
  • Expansion into New Verticals: From its original stronghold in e-commerce retail, BNPL is broadening its reach into various other sectors. It is increasingly being used for travel (airfare, vacation bookings), healthcare procedures, education, and even dining expenses. This vertical expansion highlights BNPL's potential to influence high-value, non-retail consumer spending behavior.
  • Debit Card and Bank Product Integration: A significant trend is the shift of debit payments towards credit-like products. BNPL providers are issuing branded debit cards (e.g., Affirm Debit Card), and traditional banks are integrating installment products onto existing debit cards. This embeds BNPL more deeply into daily spending as a more liquid alternative.
  • Legacy Bank Inclusion: While initially driven by fintechs, the BNPL industry is now seeing major banks like JPMorgan Chase and American Express incorporating BNPL functionality. This increases competition within the market, potentially leading to improved service quality and further innovation.
  • B2B BNPL: The concept is also gaining traction in the business-to-business (B2B) space, enabling small and medium enterprises (SMEs) to manage cash flow and access financing at the point of need for high-value transactions. The B2B BNPL segment is anticipated to become a "trillion-dollar market" by 2030.

Impact on Consumer Debt and Consumer Behaviour

The proliferation of BNPL has a multifaceted impact on consumer expenditure and borrowing:

  • Increased Spending and Affordability of Purchase Costs: BNPL products undeniably lead to higher spending. Studies have found that nearly 70% of consumers will spend more when using a BNPL product, as instalment payments make them feel more comfortable with costly purchases. BNPL spending increased 11.4% year-over-year during the Christmas period, reflecting its role in facilitating more expensive or more frequent spending. BNPL consumers generally spend more in total and capture a higher retail share of consumer spending.
  • Deferred Payment and Perceived Budgeting: While BNPL offers a convenient way to pay later and can assist some consumers with budgeting, it can also create a false sense of affordability. Individuals may become accustomed to feeling they have more purchasing power than they genuinely do, leading to overspending. Easy access, often with minimal credit checks, can encourage impulse purchases, especially for discretionary items.
  • Debt Stacking and Piling: Although single BNPL transactions are often low in value (the average BNPL loan size was $142 in 2022), consumers frequently utilize multiple BNPL services concurrently, leading to "loan stacking." In 2022, 63% of BNPL loan users took concurrent BNPL loans, and 33% took them from various companies. This can make it challenging for consumers to monitor their overall indebtedness, increasing the probability of financial distress.

Importantly, late payments can incur substantial fees. While some BNPL players previously did not report to credit bureaus, this is increasingly becoming the norm as regulatory scrutiny intensifies. Defaults on BNPL loans can also negatively impact credit scores, making it harder for consumers to obtain traditional credit in the future.

Regulatory Scrutiny and the Future

The rapid growth and dynamic nature of BNPL have significantly alarmed regulators globally. Governments in the UK (with legislation passed in early 2025, taking effect in 2026), the EU (via the Consumer Credit Directive), and Australia are enacting tighter regulations to protect consumers, focusing on:

  • Mandatory Affordability and Creditworthiness Checks: Imposing requirements on providers to conduct prudent checks to ensure consumers can genuinely repay their loans. In Australia, from June 10, 2025, BNPL providers must hold an Australian credit license and comply with responsible lending obligations, including making reasonable inquiries into a customer's financial situation.
  • Transparency of Charges and Terms: Mandating clear disclosure of all fees, penalties, and repayment terms to eliminate hidden charges. Australian regulations effective June 10, 2025, introduce fee caps (e.g., up to AUD 10 per month for default fees) and require pre-contractual disclosures.
  • Consumer Redress and Protection: Granting consumers access to formal redressal mechanisms, such as ombudsman services. From June 10, 2025, BNPL providers in Australia must be members of the Australian Financial Complaints Authority (AFCA).
  • Reporting to Credit Bureaus: Ensuring that BNPL loan information is reported to credit bureaus to provide a comprehensive and accurate picture of a consumer's overall debt burden across all credit products.

The shift towards regulation is creating a more structured market. Third-party BNPL providers will be subject to full regulatory oversight, while merchant-provided alternatives may face less stringent control in the short term. This regulatory framework will prompt providers to invest in their compliance infrastructure, potentially leading to market consolidation. As BNPL becomes increasingly integrated into global commerce, balancing the ease of consumer payment procedures with the imperative of preventing a snowball of debt will remain a critical challenge for both the industry and regulatory bodies.