Kevin James, Equifax head of advisory
Australia’s dalliance with buy now pay later services appears to be unravelling, with new consumer payments data revealing a dramatic slide in demand for the controversial payments method.
The latest quarterly consumer credit insights report published by global data provider Equifax shows that overall demand for unsecured credit in Australia fell by 8.3 per cent in the June 2023 quarter.
While the finding was not a surprise given recent official interest rate rises, the Equifax report found that the slide in demand for unsecured credit was overwhelmingly attributable to a collapse in applications for buy now pay later finance.
BNPL applications fell by a massive 26.3 per cent in the three months to the end of June compared to the same period in 2022.
Demand for personal loans was also down, but only by 5.9 per cent.
However, the Equifax data show that demand for credit cards grew during the quarter, continuing a strong recovery trend apparent over the last 12 months.
Kevin James, Equifax’ general manager of advisory and solutions, said there was a strong chance that the decline in consumer interest in BNPL was likely to continue.
“Consumer demand for buy now pay later products peaked in August last year, so if the current trend holds we are likely to see an even larger fall in the next quarter,” he said.
“If the demand trend keeps going at the current trajectory then we will probably see demand for BNPL return to pre-Covid levels.”
Consumer support for BNPL soared during the pandemic-induced lockdowns of 2020 and 2021, but has receded as the global travel and hospitality sectors have recovered in the last 12 months.
The BNPL sector, which faces stiffer regulation under reforms introduced by the Albanese Government, is in turmoil as investor support dissipates.
Most of the leading players in the sector such as Zip Co continue to generate heavy losses, while others such as Openpay have been forced into administration.
The Equifax research suggests that sales volumes are drying up as industry survivors desperately strive to rein in costs.
Trading conditions appear to be worsening for other providers in the unsecured credit market.
James said the June quarter also confirmed an overall “tightening of belts” in the consumer economy.
“While demand for personal loans declined year-on-year, the average limit per account, and the average credit score of applicants, has increased,” he said.
“This could indicate that consumers who previously weren’t feeling financial strain have begun to consolidate their debts, so they can better manage their credit payments.”
The Equifax data also identified growth in the number of mortgages in early arrears, with a 33 per cent uptick in mortgage accounts that were up to 89 days past due.
In the March quarter the number of home loan accounts that were past due by up to 89 days increased by 22 per cent.