Disclaimer: What you're about to read is of a general nature and doesn't take into account your personal financial situation, needs or objectives. We recommend you seek financial advice before making any decisions about your super and consider the relevant UniSuper PDS and TMD.

Lyndon: Well, hello and welcome to ‘Super Informed Radio,’ the podcast where we help you wade through the complexities of super. the broader world of finance and life's money matters. I'm Lyndon, and joining me, as always, is my cohost Marta.

Marta, hello.

Marta: Hi Lyndon. Hi to one and all and Happy New Year. Although I don't know if it's entirely acceptable to be saying that now.

Lyndon: It's only February. That's all good.

Marta: Yes, cool.

Lyndon: At the time of recording, of course. Well, Marta, Australians have been flocking to digital buy now, pay later services in recent times, but many of these schemes, and yes, I am using that word for a reason, they don't seem to check if their users can actually afford the things they're buying. Now, you yourself, Marta, are a casual user of those kinds of schemes like Zip Pay, Afterpay, Openpay and the like. What's been your experience?

Marta: Look, I've used them every now and again, but I thought I had them down pat. But it wasn't until I started hearing more and reading more about the risks and little issue niggly bits here and there that I decided to scratch the surface a bit and find out more. So I asked Charles Azzopardi, who's one of our financial advisors here at UniSuper, if he'd be willing to sit down with me and give his take on these kinds of services.

Lyndon: Cool. And from what you've told me, his thoughts might surprise us. So let's take a listen.


Marta: So, Charles, thanks very much for joining us in the studio today.

Charles: Thanks for having me today, Marta.

Marta: So this new wave of digital payment services or modern-day laybys are a super easy way of buying stuff, especially in and around higher spending periods like holiday and summer seasons. Can you talk us through how these services work?

Charles: Yeah. So essentially, you would sign up for an account online. So take for instance Afterpay, providing your basic details and credit card or a debit card number.

Then from there, you're able to make a purchase and when you're purchasing something, for instance, online, you have different payment options, whether that be you want to use your credit or debit card directly or a PayPal account or otherwise, one of the payment options being something like this Afterpay.

When using Afterpay, you will have a transaction amount, for instance, if your total spend on the purchase is $200, it'd be divided into four equal payments at $50, into fortnightly payments. So that's $50 each fortnight. It would be fully paid over an eight-week period.

Marta: So like a layby of sorts, really, but you get the item, I guess.

Charles: Yeah. So it's sort of somewhere in between, yeah, a layby, whereby instead of having to, you know, have your product on the shelves, you get to take it home with you. And over that eight-week period, there isn't any interest attached to it. So it has that kind of attractive feature with it. And it's very easy to sign up. There aren’t any credit checks involved. Afterpay simply use their process to work out what sort of amount of spend that you're allowed to have.

Marta: That seems kind of simple but isn't that a little bit risky? Like, who's got the onus to make sure that they... Well, it's on the consumer, really, like if these services aren't double checking that you can afford to pay this…pay for whatever it is…

Charles There's definitely that responsibility on the consumer to be able to meet up with their payment schedule. They have access to see where they're at with their spending and what their next payments are through the website.

But there is that responsibility, and if they fail to meet their obligations, then the late fees will kick in, which is one of the sort of main things to be very mindful of with these types of arrangements.

Marta: And does that then affect their credit rating?

Charles: So they do reserve a right to report to a credit agency. One of the things that's happened more recently is ASIC got looking to actually…to be able to regulate these types of arrangements.

Marta: Yeah, I was seeing in the media that the government are a little bit concerned about these kinds of services popping up everywhere.

Charles: Yeah. Well, it does stem in the case that they found that one in six users have become either overdrawn or delayed or they've had to borrow money in order to maintain their payments towards the scheme. So yeah, the concerns are there for the right reasons.

Marta: Going back to the fact that it's on us, I guess, the people buying this stuff to keep track of it, is there any one way we can monitor all of our purchases considering there's heaps of services or were they all individual companies? Because like I've heard of Afterpay, but then there's like other ones Zip Pay and Openpay.

Charles: Yep. So they are different services, yeah, and you would log in to different providers. It depends on how many people want to subscribe to and use. And it's like that with a lot of online platforms. You know, you could take eBay as an example and then there's other competitors in relation to selling goods.

One of the aspects with online shopping or any online platform is that providers are looking to penetrate and become the main user because of that convenience factor of being able to log in and see things together on the one screen. So it will be an important aspect for those who do need to manage where they're at with their payments.

Marta: Yeah. I was also doing a bit of research as well about this, coming up into this episode, and I found that it, like, a lot of the people that this seems to affect are younger people.

Charles: Yes. That is true. Yeah.

Marta: Is that a little bit concerning, or is it something that isn't a big deal?

Charles: And men more so than women too.

Marta: Really? I wouldn't have thought that.

Charles: Yes, that is...the age bracket between 18 to 24 is actually affected the most. I mean, look, it partly could be because of that easy process to establish the account. People in that age bracket may have lower incomes, so establishing credit can be a little bit more limited. So that's probably not a great surprise to see that.

Marta: Would you use these kinds of services yourself?

Charles: Personally, I haven't and I probably wouldn't use it myself.

Marta: Why would that be? Or why is that?

Charles: I just think that you're…in a sense, you're sort of delaying the inevitable. If you're purchasing something and it's, you know, $100 or $200, you make the decision to purchase it and you're purchasing it. And although you might be able to spread your payments out for eight weeks, you've still got to make payment for it.

So, the attractiveness of it is that it can delay the spend that they're having to make those repayments, but unless there's some other sort of receipt of income that's going to come within that eight-week period, you're not really gaining a lot.

Marta: Well, it comes down to budgeting, I guess. At the end of the day, you either have the money for the item or you don't, really.

So, what would be your tips for people who, you know, they're coming into a period of time where they need to spend a little bit more or they're coming out of the hangover of spending season, for people to keep their budget in check?

Charles: Yeah. So it's one of those harsh realities. I mean, I've talked to some clients, for instance, and, you know, they'll say to me, "Yeah, look, I do want to do a bit more in terms of saving, whether it's inside or outside of super." And one person, for instance, in a conversation, related it to like dieting. It's like we all want to be able to enjoy and indulge, but we need to sort of somehow limit ourselves.

But one important tool I'd bring up is thinking about your budget in terms of what you're financially committed to. That's highly important because you need to make sure that what you do spend for more luxurious items—clothing or other things—are within what you can support within your means. So I'd suggest looking at something like the budgeting tool that's available on the UniSuper website.

ASIC also have a budgeting tool on the MoneySmart website. Looking at what your net income is and looking at what your…things like your household bills, your mandatory items, insurances, transport expenses, what you need to spend on a general basis in the way of food and so forth.

Marta: All of the boring stuff before the fun stuff comes through.

Charles: Yeah, yeah, exactly. And then you also want to have a bit of a room to be able to pay yourself too, so for that holiday or for that thing you want to do less regularly but, you know, somewhat more luxurious. If you want to be able to save that $5,000 a year or whatever it happens to be for you, you know, structure that in the way of what you actually put towards your bills.

Some people, for instance, their employer will allow them to pay their net pay into two different bank accounts. So that might be a way where you can have your household bills and all those, you know, boring stuff that you've mentioned before, Marta, but also push that up a little bit to allow yourself to save up for the holiday and have that amount going into an account that you use for all these sorts of bills, leaving what's left over into a different account which you can use for your expenditure.

Marta: One of the other good things about Afterpay and all those buy now, pay later services, because it's not all doom and gloom, really, is the fact that it kind of puts you on a bit of a plan to manage a part of your money. Right?

Charles: That's exactly true, yeah. So one of the good things is that at least by sticking to the default repayment plan, the item that you're purchasing, provided you can stick on time, will be paid off over an eight-week period.

That's one of the dangers with—for instance—a credit card, minimum repayments on that are very low and debts can linger on for a very long time, attracting high rates of interest.

Marta: I have dabbled in this a little bit and I found that…and I think they're also quite flexible. Like, you know, if you've got a little bit of extra cash early on, you can just click on the button and make any additional payments and knock it off the head if you really want to.

Charles: Yeah, that is true. Yep, correct. You can make one or two payments and then bring the third and fourth one in advance and just pay it off early.

Marta: Were there any interesting findings that you came across when we were…before we invited you along?

Charles: Yeah. So just reading an article where Mozo have done a survey and they found that about 65% of users in pay-later schemes, they admitted to using…because there were small digestible payments that influenced them to make purchases they otherwise wouldn't normally make.

Marta: The unattainable becomes attainable.

Charles: Yeah, exactly. Things become easier to actually purchase. The other thing too is there was a bit of buyer's remorse in there, so that's something to be mindful of. And that there was 30% of respondents to the survey that admitted to hiding their spending from partners or parents or loved ones.

Marta: I wonder if there's anything in it like about the whole generational shift in…and I'm going to be quite general here as to not offend any of our millennial listeners, I am one, so it's okay, of wanting things sooner and having that instant gratification. I guess, these kinds of services as opposed to the laybys of yesteryear where you didn't get your item until you paid it off. It kind of feeds into that a little bit, do you reckon?

Charles: Yeah, it certainly does. Yeah, we're in a developed society where things are getting better, easier, more productive and efficient. And certainly, you know, as we move into more modern times, the creativity of modern executives make these sorts of things possible. And it's very good for those who can, I guess, use the scheme responsibly and, you know, use it to their advantage.

That's all very good. A big majority of the revenue of the majority of these schemes earn their fees from the merchants. But they still do earn, and it depends on the business, but it's around that 20% mark coming from late fees. Ideally, you don't want to be one of those people, but inevitably, in the masses, there are.

Marta: So stay on top of your payments, pay it off if you can sooner, and make sure it's within your means.

Charles: Yeah.

Marta: Charles, thanks so much for coming in today.

Charles: Thank you, Marta.


Marta: So Lyndon, after hearing all that, do you reckon you'd give Afterpay a go?

Lyndon: And men more so than women too.

Marta: Is that a little bit concerning, or is it something that isn't a big deal?

But if you are on claim and you're not sure what you can do and what supports are in place, absolutely, contact your claims assessor.

Lyndon: I don't know. For me, I'm not sure I see the point. I just usually either know that I can afford what I'm going to buy it and stick it on the credit card and pay it off or just pay for it upfront. So I don't know. I'm not opposed to dipping my toe in those waters. But, you know, look, as Charles alluded to, the rules may change.

For instance, you know, at the time we're recording this matter, there's the Senate inquiry looking into payday lenders, debt management firms and, you know, buy now, pay later services and how they affect vulnerable consumers. So yeah, who knows. We'll see what happens.

Marta: Yeah, totally. And I think the moral of the story is—as with anything—do your research and figure out if you can actually afford the item before buying it through these schemes, as you would if you were buying it outright anyway. Simples.

Lyndon: Simples. And that wraps up another episode of ‘Super Informed Radio.’ As always, you can catch up on past episodes at unisuper.com.au/podcasts or by subscribing through any good podcasting app. We'll see you next time.

Marta: Bye for now.

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