At Consumer NZ, we are examining whether current regulations of Buy Now, Pay Later (BNPL) services provide adequate consumer protection. This work is being carried out in partnership with FinCap, with research conducted by Te Herenga Waka—Victoria University of Wellington, and is supported by funding from the Michael and Suzanne Borrin Foundation.
This report covers stage one of a research project on BNPL in New Zealand, and the regulatory reforms that came into effect in September 2024.
Key findings
While Buy Now, Pay Later (BNPL) has advantages over other forms of credit, there is a risk it can lead to debt spirals, bad credit ratings and hardship.
The main issue is that BNPL lenders can provide credit without being legally required to check a customer’s ability to repay without significant difficulty.
Other issues with BNPL include:
- Default or late fees – usually structured as flat rates or percentages of the principal amount. Due to the widespread availability of BNPL products, defaults are reasonably common.
- ‘Credit card effect’ – BNPL is linked with increased spending and overconsumption.
- Neglecting other payment obligations – some consumers go without essentials or delay bills to make BNPL repayments.
- Misleading advertising – this often obscures the fact these arrangements are a form of lending. This is particularly concerning as lenders frequently target individuals who may lack financial discipline.
- Tool for economic abuse – particularly in the context of family violence. Abusers may coerce their partners into making purchases on their behalf or fraudulently incur debts in their partners’ names.
- Insufficient authentication methods – customers typically only need to provide a photograph of a form of identification to open an account, without any robust two-factor authentication or verification to ensure the ID matches the person applying. This relaxed approach to identity verification facilitates fraud.
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