Considerations When Using "Buy Now, Pay Later"

Technology, automation and artificial intelligence (AI) seeks to cut out the very work that professional service advisors do.

By Law Squared

There is no doubt that the Buy Now, Pay Later payment gateway is one of the biggest innovations in FinTech for the retail sector. According to ASIC, users of these gateways in Australia grew from 400,000 to two million between 2015-2016, spending over $903 million through these services in 2018[1]. As a business owner, you may be interested to take advantage of the holiday shopping period to engage the services of one of these gateways and capture some of this value. On the other side of the coin, as a consumer you may use the platform to make payments more flexible, to make valuable purchases easier, and to stagger your cash flow.

Indeed, there are numerous benefits in having the choice to purchase products via instalments instead of paying a single-sum upfront: Not only will customers find it easier to pay in smaller amounts with greater frequency, retailers can also partner with the platform to increase customer base and secure high-value or repeat purchases. The use of these platforms can also enhance your marketing strategies if combined with other initiatives like trade promotions. In general, consumers have great trust in the reliability of these platforms, with 86% of users who had used these arrangements within 12 months planning to do so again.

Nevertheless, there are considerations that you need to think about that come alongside the list of positive attributes offered by these gateways. Before joining the growing list of retailers and consumers that use these services, don’t forget to consider these issues:

For Businesses

Buy Now, Pay Later platforms encourage retailers to partner with them by managing issues like late payment and non-payment. For your business, this means minimal risk and hassle when signing up with these platforms.

How do I maintain customer relationship when a third-party service is involved?

One way to maintain clarity in what you and your customers should do in various events is to adjust your Terms and Conditions with additional provisions relating to Buy Now, Pay Later services. For instance, how will you manage product exchanges, refunds or returns? A bumpy customer experience can drive away sales. Therefore, while payments will be managed by the platform, you still need to manage the logistics of customer returns and make sure to keep track of them.

Furthermore, from a marketing perspective, many payment platforms require you to use their branding collateral. While this might be a small consideration, it nonetheless can affect how your product is perceived by consumers.

Will the use of the Buy Now, Pay Later service affect my prices?

This depends on your business decision. Buy Now, Pay Later services earn money by charging a set percentage amount over each sale you make. A win (well, a short term win at least!)  for retailers has been where businesses have been able to sell more of their inventory at full or near full price as it has convinced customers to not wait until (the never ending!) discount season to purchase their desired products. This can be a great thing for your inventory turnover.

What happens if a customer misuses the payment platform?

Most platforms offer the benefit of managing customer non-payment and debt recovery, which allows you to maintain some peace of mind when a customer does not pay. Other alternative payment methods such as lay-by do not give you the same hassle-free process, making this feature of Buy Now, Pay Later platforms a major drawcard for retailers looking to sign up.

For Consumers

While Buy Now, Pay Later platforms sound like a sweet deal for shoppers – particularly during holiday shopping season – it is worth doing some research on how the platforms work and their terms and conditions before indulging yourself in some Christmas shopping this summer:

Is there a spending limit?

Depending on which platform an online shop uses, a minimum or maximum spend may be set up. The frequency of the spend is also limited – generally, it starts with one purchase through the service at a time. After prolonged use of a platform, they may increase the limit of purchase numbers and value of the purchase, depending on how timely you are with your payments.

How big is the commitment?

It is reported that 2 in 5 users of these arrangements earn under $40,000 per year, with 55% of users also reporting that they spend more than they would otherwise as a result of using these platforms. As such, keep in mind that the instalment system may mean that you might commit yourself to payments for longer than you’d want, as well as committing a larger proportion of your future income than you’d like.

These platforms should not be used as a replacement for a credit card that you don’t need to apply for. This misuse of Buy Now, Pay Later platforms may not only land you in serious financial trouble, but also negatively affect your spending habit by normalising debt in day-to-day spending.

What happens if I can’t keep up with my instalments?

Buy Now, Pay Later services offer a great service for individuals who can make payments swiftly and in adherence to the platforms’ terms and conditions. Unfortunately, most of these platforms charge a high fee for non-payment, which could be a sting if they arrive unexpectedly. If not used carefully, it can lead to significant debt and even affect your credit rating.

Some of the major platforms like AfterPay or ZipPay have the discretion to report non-payments to creditors and/or debt collectors, should that information be requested. Therefore, you may need to reconsider the use of these platforms if you are struggling to keep up with other life expenses or are at risk of becoming indebted.

How are my rights protected?

A hotly-discussed issue relating to your consumer rights is the fact that ASIC has limited jurisdiction over conduct of these platforms under the National Consumer Credit Protection Act 2009. The fact that the Act does not apply to Buy Now, Pay Later arrangements mean that shoppers might at risk from unfair terms and conditions.


Don’t forget to do your research if you are interested in using a Buy Now, Pay Later service. Be mindful that whilst they provide short-term solutions for both consumers and businesses, long-term consequences can eventually come out into play.

For businesses, consider what might happen in the future if the novelty of these services fade away and uptake of the service stagnates or even decreases. It may cause some issues in your business’ sales forecasting tactics, for instance.

For consumers, be wary of the consequences of the impact that Buy Now, Pay Later services might have on your spending habits, and the repercussions of falling behind on payments.

While it offers great features that would make life easier for businesses and consumers, keep in mind that there may be unintended consequences when these platforms are used without proper consideration of your own financial situation.

[1] Australian Securities and Investment Commission, Report 600, 'Review of buy now pay later arrangements' [Nov 2018].


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