Buy now, pay later users more likely to double up on risky ‘pay advance’ products

Users of buy now, pay later services are more likely to be using other forms of unregulated credit products such as pay advance solutions, prompting concerns from consumer groups about those users running into financial difficulties.

Both buy now, pay later (BNPL) and pay advance products allow consumers early access to goods or cash through short-term loans, but are not considered credit products. Personal finance app Frollo found one-third of its users, drawn from a sample of 33,000, were BNPL users. That sample was 43 per cent more likely to be also using a pay advance service compared to those not using BNPLs.

Pay advance, or wage advance, providers include Beforepay, MyPayNow and Wagetap, among others. They offer workers access to their pay ahead of time, with the advance repaid, along with a flat fee or a percentage fee, when the user gets paid by their employer.

Consumer groups have compared them to payday lending, but with fewer fees and shorter repayment timeframes.

Like the BNPL sector, the emerging pay advance sector is not regulated under credit laws and so providers are not required to do credit checks on those applying for apps or to do subsequent checks – though some do.

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Regulation for the BNPL sector is pending, with the federal Treasury having closed its consultation with the industry and consumer groups late last year on how the sector should be regulated.

Stephen Jones, the federal assistant treasurer and minister for financial services, said last year the government will examine wage advance products and the point-of-sale exemption that allows retailers to sell credit unregulated.

Financial Counseling Australia chief executive Fiona Guthrie told this masthead that, ​anecdotally, financial counselors are saying that the number of clients presenting with wage advance products is growing.