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Source: MIL-OSI Submissions
Source: Ibis World

Demand for Buy Now Pay Later (BNPL) services has soared during the COVID-19 pandemic, reflecting a rapid rise in online shopping by consumers in New Zealand. According to NZ Post, 11% of all online shopping revenue was conducted through BNPL channels in 2019-20. Total spend through BNPL channels rose by 105% in 2019, and is expected to surge even faster in 2020.

‘The number of customers using BNPL rose by 49% in 2019, with particularly strong growth among younger consumers. The adoption of BNPL has created significant headwinds for credit card providers,’ said IBISWorld Senior Industry Analyst Yin Yeoh.

Over 1,200 Kiwi businesses have signed up to offer Afterpay alone, with far more businesses taking up similar offerings from PartPay, Laybuy, Oxipay and GenoaPay. Approximately 20% of all trade in the Clothing Retailing and Footwear Retailing industries was conducted through BNPL in 2019.

COVID-19 and BNPL

The COVID-19 crisis has created a new normal in retail shopping, where consumers have shifted to buying products online. The Online Shopping industry is expected to grow by 6.7% in 2020-21, to $5.3 billion. During the COVID-19 lockdown period in the first half of 2020, many clothing retailers established an online presence to preserve viability. Most retailers have retained their online presence, and are expected to see further growth in online shopping during the current Stage 3 restrictions in Auckland.

‘BNPL appears to be a net positive for most retailers, by driving incremental sales from customers that would otherwise not occur. However, the cost of BNPL, which is borne by retailers rather than customers, may be a net loss for smaller operators,’ said Ms Yeoh.

BNPL Outlook

The adoption of BNPL services by consumers in New Zealand is expected to accelerate in future years. However, BNPL demand may be hindered by weak retail expenditure by households in 2020-21. Household consumption expenditure in New Zealand is expected to decline by 6.6% in 2020-21, before recovering by 7.7% in 2021-22. Revenue for the Department Stores industry is expected to decline by 15.3% during the current year.

‘The economy is anticipated to rebound from the negative impacts of COVID-19. However, consumer sentiment is projected to remain negative throughout 2020-21, with many consumers feeling financially vulnerable. Consequently, consumers are less likely to spend on discretionary items,’ said Ms Yeoh.

Households facing financial difficulties are expected to be a key growth market, with some households resorting to the use of BNPL services while purchasing essential items, including groceries.

‘The ability to shop now and pay for it later is very attractive for many budget-conscious consumers. The convenience of doorstep delivery has encouraged younger consumers to purchase groceries from online supermarkets and food-based retailers, such as prepared meal kits and subscription-based food boxes,’ said Ms Yeoh.

Regulatory threats

While growth is accelerating for BNPL operators, the threat of regulatory intervention looms.

‘Most BNPL operators’ business models are built around customers not paying for the service, unless they are late. This model distinguishes BNPL operators from credit card providers, which also means that BNPL operations fall outside the Credit Contracts and Consumer Finance Act 2003 (CCCFA),’ said Ms Yeoh.

The Credit Contracts Legislation Amendment Act 2019, passed in December last year, amends the CCCFA and strengthens requirements for creditors to lend responsibly, largely in relation to how affordability and suitability tests are conducted. However, BNPL operators were not included in the scope of the amended CCCFA. Nevertheless, the Minister of Commerce and Consumer Affairs is seeking to establish new powers to regulate new credit products, including BNPL, in the instance consumers struggling with debt repayment.

‘If an increasing number of BNPL users have difficulty repaying their debt, the potential new product intervention powers of the Minister of Commerce and Consumer Affairs would allow regulators to intervene, potentially affecting BNPL operators’ revenue,’ said Ms Yeoh.

IBISWorld reports used to develop this release:

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