Consumers are using buy now pay later services more frequently and spending larger amounts, as they fall back on unregulated credit to make ends meet.
Open banking service provider Frollo compiled data from more than 30,000 consumers using the Frollo app and found that 32 per cent used BNPL in the March quarter – up from 25 per cent in the same period last year.
Spending on BNPL increased by 9 per cent over the same period to an average of A$420 a month.
Close to a quarter (24.1 per cent) of BNPL users in the survey paid off their BNPL debt with a credit card. Use of credit cards to pay BNPL accounts is up 12 per cent over the year.
Frollo also found that 2.3 per cent of BNPL users made at least one payment to a pay advance provider during the March quarter, compared with 1.1 per cent for all the consumers in the sample.
Young people are more likely to use BNPL. Among consumers in the sample, 18 per cent of baby boomers and 30 per cent of millennials used BNPL.
Frollo’s chief commercial officer Simon Docherty said increasing use of “invisible” (unregulated) debt poses problems for consumers. Many providers do not do proper credit assessments, some consumer protections are not available and other lenders are often not able to include BNPL debt in their credit assessments.
Docherty said the combined use of BNPL and credit card accounts had the potential to create a vicious cycle of debt, making it difficult for people to manage their finances effectively.