Unsafe spending at the intersection of Instagram and Afterpay

Buy now pay later services, such as Afterpay, may make the payment part an afterthought.

Charlotte Watson is a walking, talking, social-media posting ad for her business. Just on a year ago, the 30-year-old pilates and ballet barre instructor took the plunge and started her own boutique fitness studio, NXT Studio on Queensland’s Sunshine Coast.

But finances are tight. “It’s money in and out… in and out. There’s no spare at the end of a week.”

So her marketing is constrained to personally letter dropping – with her young son in the pram – and, largely, Instagram.

Does she feel pressure to look the part?

“Definitely. Hugely – because people look up to you and people make comments on what you look like,” Watson explains.

“Instagram influencers make that a little bit more pressured [for the rest of us] by how they look, even though they may not be in the fitness industry. They often get given the clothes, so it creates that pressure then, via the stuff they’re wearing, for you to have to make purchases to look a certain way.

“And people are kidding themselves, I think, if they say they don’t feel the pressure. You’re lying to a degree.”

So how does she cope financially? “Afterpay,” Watson confesses to me before ducking for cover.

Afterpay is the largest of several buy now, pay later services that have positively exploded in Australia in the past few years; ZipPay is the next-biggest.

These are like lay-by in reverse: you get to bag the goods immediately but pay them off over, say, eight weeks… usually interest-free. Because of this, the innovative business model slips through the cracks of credit laws – and the corporate regulator has confirmed it’s watching closely.

Watson puts it perfectly: “It’s just a psychological thing you feel – it’s almost saving, but you get your hit now.”

That’s long been my concern: services such as Afterpay make the payment part an afterthought… and it’s way too easy to spend more than you otherwise would. Think about it: why else would retailers and e-tailers diminish their profit by paying for them? 

There are also usually no credit checks and nothing to stop people from signing up for multiple services. By way of rebuttal, providers claim to start customers small to see if they can handle repayments, and cut them off quickly if it emerges they can’t.

For Watson’s part, she tries never to have more than one Afterpay going at a time. And she limits herself to $30 in fortnightly repayments. “I buy cheap and you know quality,” she says.

But it’s possible she’s the exception among her peers, according to a new cross-sectional survey of 1000 Australians by Choosi.

Conducted by CoreData, respondents under 30 were by far the most likely to use a buy now, pay later facility – more than one in three versus one in five across the population. Indeed, Afterpay has confirmed three out of four of its nearly 2 million customers are Millennials.

More worryingly, of these users, nearly one in five do so at least daily and one in 10 several times a week. The comparison for all older users is only 3% for both.

Watson says that rings true.

“Oh yes. I know so many people who have six or seven at least going at a time. I know of one girl who has, like, $20 coming out every couple of days, which would also be on fitness clothing and clothing in general.

“I think it can actually be a really great thing but people aren’t using it correctly and are getting carried away.”

One in four respondents under the age of 30 buy now and pay late once a month, while for another 29% it’s a few times a year.

As one 43-year-old, female commented in the survey: "These payment options make it too easy to spend without thought or consequence. You don't have to consider much if you can pay 25% for the item and walk away."

Counter to perceptions, this latest research suggests men of all ages use the services most frequently – 21% as opposed to 1% of females said they do daily, while 13% (versus 2%) reported several times a week. Women are apparently more likely to ‘'delay pay'’ several times a month, once a month or once a year.

What we don’t know is how many customers hook instalment services to a credit rather than debit card, a move Watson describes as “stupid”.

This is the huge danger – because if you don’t pay off the instalment, in a heartbeat it becomes long-term debt, at an average 18% interest. And the regulator issued a warning just recently about the sheer size of Aussies’ existing balances.

Please be aware that at the intersection of Instagram and Afterpay, there could be debt by design… and be very careful.

 

This article was originally published by The Sydney Morning Herald on 6 July 2018. It represents the views of the author only and does not necessarily reflect the views of AMP.

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