Balancing act: How financially vulnerable people are using BNPL to “dig their way out of debt”

Buy Now Pay Later (BNPL) providers like Afterpay, Zip and Humm have enjoyed a rapid uptake. However, we’ve found an increase in the number of people in financial hardship who have BNPL debts as well as traditional credit card debts and loan.

In fact, 80% of survey respondents indicated that they have used BNPL services.

In some cases, BNPL is used to buy essentials so that cash can be directed to paying off existing loans. The use of BNPL as a short-term solution to a longer-term problem can make a bad situation worse.

Further, the ease of access to BNPL facilities can mean that financially vulnerable users quickly end up in overwhelming financial difficulty.

Key research findings

Many in financial difficulty use BNPL on top of their existing debts. 80% of Way Forward clients have used at least one BNPL facility in the last 12 months.
“How often does your financial situation negatively impact your mental health?People in financial difficulty are mainly positive towards BNPL and appreciate its simplicity and ease of access. The majority of BNPL users in financial difficulty feel positive about many aspects of BNPL.
Most BNPL customers in financial difficulty aren’t nervous about BNPL making them more financially vulnerable – but those who’ve never used BNPL starkly disagree.
42% of BNPL users in financial difficulty feel nervous BNPL might make them more vulnerable to further difficulty, compared to 91% of non-BNPL users feeling nervous about this.
Worrying over essentials means poorer mental health outcomes for those in financial difficulty. 85% of those who worry about everyday essentials also have their mental health impacted every day.
Young people (18 – 34 years old) in financial difficulty feel most challenged. Young people (18 – 34 years old) in financial difficulty feel the pinch more, have more worries for their future and are more vulnerable to financial difficulty.

Understanding the survey results

The stories behind the numbers

The report found that a typical BNPL user in financial difficulty is female, younger, renting and has under $1,000 in savings.

In addition, the survey responses indicated that BNPL users in financial difficulty were more likely to worry more frequently about having enough for essentials. Among BNPL users, 41% worry at least every week compared to 26% of non-BNPL users.

The typical BNPL user in financial difficulty

How often does your financial situation negatively impact your mental health?
Top five spend categories

Our recommendations

We’ve offered recommendations for industry. These apply to BNPL services as well as other providers of financial products such as credit cards and loans.

Unmanageable debt and poor mental health are connected

The findings of this report confirm that there is a correlation between poor mental health and complex debt, insufficient savings, and financial vulnerability.

This means that finance providers have a duty of care to support positive financial and mental health outcomes when engaging with customers experiencing financial difficulty.

We advocate for a holistic approach to customer support, which includes offering tailored solutions and identifying at-risk customers using technology solutions. Further, caring for these customers means providing access to efficient but compassionate customer service channels, for example minimising the number of times someone tells their hardship story.

Take care to ensure that the provision of BNPL facilities does not compound existing financial difficulties

Way Forward’s research discovered that some financially vulnerable client’s access BNPL to pay for essentials while using cash or other assets to meet credit card or loan repayments.

We recommend that the BNPL providers develop resources to ensure users are fully aware of the risks of using BNPL and that they understand their options if they cannot make repayments.

Further, BNPL providers can work to identify financially vulnerable customers prior to providing services and limiting their access to BNPL facilities.

Understand the unique challenges of young people in financial difficulty

The research found that young people in financial difficulty experience the greatest financial and mental health challenges. This group is also one of the biggest BNPL user groups, and as such, we recommend a tailored approach to supporting young BNPL users.

This could mean offering tailored education, support and products that are suitable for this age group. Assisting young people to avoid financial difficulty means that they can establish their adult lives without overwhelming debt and consequently enjoy more positive long-term financial and mental health outcomes.

Download the full report to read Way Forward’s recommendations for industry.

Help is out there

By releasing this report, we want Australians struggling with debt to realise they are not alone. It’s natural to feel stress and anxiety over money in those circumstances. Remember, help is out there and having a realistic repayment plan to end the cycle of debt can make all the difference in reducing anxiety that comes with debt stress.

Our team of well-trained financial hardship advocates offers free support so more Australians can find their way forward towards financial freedom.

Get in touch with Way Forward on our website or give us a call on 1300 045 502. Our office hours are 9:00 AM-7:00 PM AEST Monday to Friday.

For other services such as mental health support, please visit our page listing support services available in Australia.

Download the report for additional insights, data and recommendations for the industry, legislators and hardship teams of financial institutions.

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