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The economic impact of Buy Now Pay Later in Australia

Regulators globally are realising traditional finance and credit products need re-evaluation to determine how best to provide proportionate, scalable and targeted regulatory frameworks that balance payments innovation, consumer choice, flexibility and interoperability, while delivering high standards of consumer protection.

Governments globally are realising the importance of payments and financial services efficiency to economic growth, financial wellbeing and social participation.  The Australian Finance Industry Association (AFIA) recognises innovation, competition, market efficiency, economic growth and consumer protection are interrelated and, therefore, must be addressed collectively. An informed understanding of the Buy Now Pay Later (BNPL) sector is critical to ensuring we identify appropriate responses that will create the conditions for a payments and financial services ecosystem fit for the future.

AFIA’s purpose is to champion a thriving finance industry into the future, always acting in the interests of customers and communities. It wished to promote this purpose and engage in meaningful dialogue with regulators and other stakeholders by providing a rigorous quantification of the economic impact of BNPL.

The solution

Oxford Economics Australia worked in partnership with RFI Global.  During the period December 2021-February 2022, RFI Global undertook detailed surveys of the BNPL market that were completed by 1,746 consumers (of whom 1,006 were BNPL users), and 702 merchants (of which 323 were BNPL accepting). This was followed by a survey of an additional 1,006 consumers in February. The surveys asked questions related to the following topics:

• Purchasing habits of consumers using BNPL.
• Payment alternatives to BNPL available to consumers.
• Consumer sentiment in relation to BNPL and credit card flexibility.
• Consumer sentiment in relation to BNPL attributes.
• Consumer sentiment in relation to essentials
• Key merchant motivators for BNPL acceptance
• Merchant sentiment in relation to BNPL.

Based on the survey findings, complemented, where relevant, with publicly available data from sources such as the Reserve Bank of Australia (RBA) and data from BNPL providers collected in January- February 2022, we modelled the economic impact of the BNPL sector in Australia using both economic welfare and economic contribution approaches. Economic welfare measures indicate net benefits to consumers and producers (not all of which are captured in GDP). Economic contribution approaches indicate the gross contribution to the economy, typically in employment and GDP terms.

The results

The report is available at https://afia.asn.au/files/galleries/AFIA_BNPL_Research_Report.pdf

The research used two separate approaches to measure the economic impact of BNPL for Australia:

• Firstly, using economic contribution metrics, we measured the role of BNPL in supporting national employment and GDP. In FY21, allowing for flow-on effects, BNPL helped create or retain some 99,200 jobs throughout Australia and contributed $14.3 billion in Gross Domestic Product (GDP) to the Australian economy.
• Secondly, using a welfare economics approach, we measured the combined consumer and merchant surplus benefits, or ‘net social surplus’. Here BNPL provides a good illustration of ‘revealed preference’ in that merchants and consumers have continued to adopt it precisely because it provides advantages to other payment alternatives and the benefits calculated in this report reflect this.

Using these metrics, and after allowing for costs, BNPL has an overall net positive impact to the Australian economy in FY21 of $1.256 billion driven by:

• Credit card and other interest and fee savings and budgeting benefits to consumers.
• Growth in revenue and associated profits for merchants.
• Cost efficiencies for merchants.