Since Afterpay launched in 2015, 7.3 Million people have taken up the service. Since then, many imitators have joined this lucrative market. But if they promise "no fees", how are they making money, and why are other companies so keen to get in on the action? ASIC must have been wondering the exact same thing, and Buy Now Pay Later services have found themselves in a bit of hot water recently over shonky practices. With this in mind, we investigate some of the top services and just how they make their money, and which ones give the best bang for your buck.
Overview:
What is Buy Now Pay Later?
If you somehow haven't heard of these services, let me explain what they are all about. Buy Now Pay Later services are the modern layby. The one difference, however, is that you get to take your purchases home with you. You then pay the balance in several interest-free instalments. Sound too good to be true? It is.
Pros
Take your purchases home with you
Break large payments into smaller amounts
Fast and Easy form of credit
Cons
Late payment fees
Easy to overspend
can affect your credit score
Fees to look out for
So, these companies have to make money somehow, right? They may not charge any interest, but they can hit you with a range of fees, including:
account keeping fees
late fees
payment processing fees
establishment fees
This graph from ASIC shows how each Buy Now Pay Later service is making their money. As you can see Afterpay makes about 20% of their revenue from missed payment fees, whereas Zipmoney has the most consumer fees. You can read the full review from ASIC here.
Interest Free, really?
There is one frightening way Buy Now Pay Later services can rack up a lot of interest. They need a card attached to them to charge the payments to. If you attached a credit card to meet your payments you will accrue interest, not from the service but from your bank itself. This kind of credit stacking is not recommended.
Ok, so lets get down to business and compare the various services out there, starting with the biggest of the bunch, Afterpay.
Afterpay
Amount: $500 for debit card, $1500 for credit card
Credit check: No
Late Fee: $10, with a cap of 25% of the purchase price or $68
Other Fees: $7 default fee if missed payment is not made up within 7 days
Rating: 6/10
The cap on late fees is a good move, but $68 is still a lot. If you are charged the full amount of late fees that is still 13.6% on a $500 purchase. On $200 you could potentially be charged $50 late fees
You also get a higher limit if you have a credit card attached to the account, which could be dangerous if you are incurring interest on your credit card. For more on Afterpay, visit our comprehensive guide.
Step Pay
Amount: Up to $2000
Credit check: Yes
Late Fee: $10 late fee, capped at $20
Other Fees: $There are no other fees, and late fees are capped at $120 per year
Rating: 9/10
StepPay is the latest addition to the Commonwealth Bank range of services. It allows you to break your purchases into 4 fortnightly instalments. Does this sounds familiar? That's because it closely models itself after Afterpay, the Buy Now Pay Later giant that started this whole shebang. For more info, head to our article about Step Pay
Zip Pay
Amount: Up to $1000
Credit check: No
Late Fee: $5 if minimum monthly payment of $40 is not made
Other Fees: $6 Monthly Fee when you have an outstanding balance
Rating: 6/10
A subsidiary of zipmoney, zippay is its smaller cousin, modelled from the slight more popular Afterpay. Despite boasting that they are "interest free," Zip Pay charges a $6 flat monthly fee. This flat fee equates to 7.41%pa on a $1000 balance, and even more on smaller balances. Some people may prefer this flat fee however, as it is predictable and easy to budget for, and will not exceed $72/year, unless you miss payments. Learn more about Zip Pay here.
Humm
Amount: Up to $10000
Credit check: Yes, but not a hard check
Late Fee: $6
Other Fees: $35 - $90 establishment fee on larger purchases
$22 Repeat purchase fee on repeat larger purchases
$8 Monthly fee for larger purchases and smaller purchases repaid over 5 months.
There is no fee for smaller purchases repaid within 10 weeks
Rating: 4/10
Humm, formerly Certegy, is a payment plan provider for larger purchases. Many retailers such as mechanics or medical professionals use them as an easy way for their customers to pay off larger bills. You are most likely to encounter Humm in this context, so if you are offered a payment plan for a large bill, make sure you ask who is providing it, and read the terms. As you can see, they are a little more fee heavy than other buy now pay later services, due to the larger amounts they cover. They also will check your credit score before opening an account, whereas Afterpay only requires a current debit or credit card. Learn more about Humm here.
Openpay
Amount: Per item
Credit check: Yes
Late Fee: For missed payment and again after 8 days
Other Fees: Establishment Fee, Redraw Fee, Plan Management Fee
Rating: 1/10
My first impression is that Open Pay are not very open about their fees. Their website states: "some plans may involve a small plan management fee with each fortnightly or weekly repayment". There is no way to find out what the fees are before you sign up! I would avoid this service altogether. Read about the downfall of Open Pay here.
Latitude Pay
Amount: Up to $1000
Credit check: Yes, soft check
Late Fee: $10
Other Fees: 10% deposit at time of purchase
Rating: 4/10
Latitude, formerly known as GE Money have undergone a thorough identity change over the course of several years. GE Money had a reputation as a "dodgy lender" and used to offer high interest loans to bad credit clients. Since their rebranding they have moved into the higher tier lending space. Latitude Pay is their latest offering. The service itself seems great. It has lower merchant fees than afterpay, and more flexible payment terms. It appears to live up to its promise of "no interest, ever." The main weakness of the service, however, is the customer service. There are many reports of cards not working, defaults being listed for missed payments and a clunky verification process. Read about Latitude Pay here.
Bundll
Amount: Up to $1000, up to $4000 for Superbundll customers
Credit check: Yes, for superbundll
Late Fee: $10
Other Fees: $5 "Snooze fee" to delay a payment. Establishment fee for Superbundll.
Rating: 4/10
Upon launching, Bundll launched an aggressive social media campaign. Their website is very transparent about their fees and charges. They present themselves as a cool and convenient way to pay, but in reality their service is not much different to other Buy Now Pay Later services, in price or features.
One of the cool features of Bundll is you can use your Raiz balance to pay for fees. I would advise against this, at it feels a bit like robbing yourself of your money for the future (Yes, I'm dramatic) Here is my comprehensive article about Bundll.
Klarna
Amount: No set limit
Credit check: Yes
Late Fee: $3 - 15, depending on purchase size
Other Fees: $3 - 7 "Snooze fee" to delay a payment
Rating: 7/10
You may have seen ads for Klarna over the past few months. Klarna launched in Australia with Commonwealth Bank last year and splashed a lot of cash on a fancy marketing campaign to entice consumers. But, is it worth it?
With Klarna you cannot see your credit limit. Their rationale is that if you don't know what it is you can't max it out. The downside is you don't know if you will have enough credit for a purchase until you try to make it. Their tiered late and Snooze fees are a little bit fairer than flat fees charged by similar services. Read about Klarna here.
What is the best Buy Now Pay Later service? The Bottom Line
So, do these products have a place in the market? Of course. It's human nature to want things and want them now! But should they have a place in your wallet. I'm definitely biased, but the answer from me is a resounding no! Buy Now Pay Later products offer enticing benefits, and if used correctly can be a good budgeting tool. One thing I do really like about these services is that if you use them well and have a good repayment history, they will give you more credit. This could be beneficial for people with bad credit to access lines of credit that assess you on your merit. It could also lead you into a credit trap.
Overall, I would say that if you are already a Commbank customer, Step Pay is a good option. However, be careful not to start a debt spiral.
However, they encourage overspending and buying things that you really can't afford. By instead saving for the things you want, you can enjoy the rewards of working hard and a better financial future.