Afterpay Eyes Australian Supermarket Sector Amid Regulatory Changes
Afterpay, a prominent player in the buy-now, pay-later (BNPL) industry, is setting its sights on the Australian supermarket landscape, propelled by new regulations that align BNPL platforms with traditional credit providers. The updated legislation mandates that BNPL services adhere to similar standards as credit card companies and lenders, thereby enhancing their credibility.
Nick Molnar, co-founder of Afterpay, expressed optimism that these changes would encourage major retailers like Woolworths, Coles, and Aldi to incorporate BNPL as a payment option. However, finance expert Andrew Grant from UNSW raised concerns regarding the potential consequences of allowing customers to pay for everyday groceries in instalments. "It’s easy to fall into debt if you’re frequently overspending," he cautioned, questioning whether accesing Afterpay could lead to increased grocery bills.
Currently, Afterpay is accepted at select IGA and Drakes supermarket locations, but leading chains have been hesitant to adopt this payment method. Grant notes that while most BNPL users manage their repayments responsibly, there is a pressing need to draw a line to avoid encouraging unnecessary debt. Domenique Meyrick, co-CEO of Financial Counselling Australia, mirrored these concerns, stating, “Using credit to make ends meet often creates a dangerous cycle—both BNPL providers and retailers should not promote this behaviour.”
The use of BNPL services has historically been associated with larger purchases, where consumers are more willing to spread payments across multiple instalments, such as for a $1,000 television. However, due to the ongoing cost-of-living crisis, some consumers are now relying on BNPL to manage essential expenses, leading to increased scrutiny.
As of now, BNPL providers must assess a consumer’s repayment capacity before approving transactions, mirroring the credit checking practices of traditional lenders. This shift in policy requires companies to evaluate consumers’ income, expenditure, and debts, as part of a broader effort to ensure responsible lending.
BNPL platforms will also begin reporting customers’ payment histories to credit agencies—both good and bad—which could affect their ability to secure credit cards, personal loans, or mortgages in the future. Molnar believes that regulatory scrutiny will enhance the legitimacy of BNPL services in the eyes of major Australian retailers. He stated, “Major industries have been hesitant to adopt Afterpay until regulatory frameworks were in place; now, we’re poised to expand into everyday spending domains.”
As for Woolworths, Coles, and Aldi, their responses remain non-committal. While Coles and Aldi have confirmed they won’t be implementing Afterpay as a payment option in the foreseeable future, Woolworths offered a vague stance, stating they have no additional information at this time. Grant noted that, although these retailers may not be ready to embrace BNPL yet, they could change their stance if they can negotiate favourable terms with Afterpay, given that merchant fees for BNPL (between 2% to 8%) significantly exceed the fees for credit and debit card transactions (0.5% to 2%).
Due to concerns over reputational risks associated with deepening consumer debt, supermarkets may remain cautious about fully integrating BNPL services. Nonetheless, some consumers have found a way around this, purchasing gift cards for Coles, Woolworths, or Aldi through BNPL platforms, thereby enabling grocery shopping with BNPL funds.
Research conducted by Compare Club indicates that approximately 31% of Australians surveyed have turned to BNPL to manage essential purchases, like groceries and fuel. However, the majority (around 66.67%) typically reserve BNPL for non-essential buys, such as clothing and gifts. Strikingly, nearly a quarter of respondents reported owing between $1,000 to $5,000 to BNPL services, with 20% admitting to incurring late fees regularly.
Despite the potential pitfalls associated with BNPL services, the ongoing economic pressures may compel shoppers to lean on these financial tools for their grocery needs. As the landscape continues to evolve, all eyes will be on how major supermarkets respond to this burgeoning trend amidst rising concerns around consumer debt and financial literacy.
