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Buy Now Pay Later: A Shopping Hack or Debt Trap?

  • Writer: Cora Winslow
    Cora Winslow
  • Oct 1, 2025
  • 8 min read
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Introduction to Buy Now, Pay Later Services  


What do fashion retailers and banks have in common? They are increasingly competing for the same modern customer. 


Over the last couple of years, there has been a dramatic growth in Buy Now, Pay Later (BNPL) services, mainly attributed to the continuous rise in consumerism. These fintech products allow customers to finance purchases by splitting payments into several instalments, providing an interest-free way to finance purchases (Soni, 2023). 

Fintech refers to various digital technologies in financial services that promise to make financial transactions faster, easier, and cheaper (Omarova, 2018). BNPL is at the core of this offering by promoting interest-free borrowing. BNPL is often marketed as a friendlier, more accessible, safer alternative to credit cards, particularly for those consumers wary of traditional forms of debt (Williams, 2025). 


BNPL has completely disrupted both the online retail and finance sectors. Awareness has become near universal, with 91% of Australians familiar with BNPL services, and usage now cuts across age, income, and lifestyle segments (Australian Retailers Association, 2020). 


This article explores how BNPL has moved beyond just a payment method, considering its spread across demographics and consumer trends, the rise of regulation alongside the growth, the implications on consumer behaviour, and the risks tied to its use. 



Key players in the BNPL Market  


Several players dominate the Australian market, including Zip Pay, Humm, Afterpay, and PayPal. 


  • Afterpay has been recognised as a pioneer for its early-mover advantage and its continuous innovation to self-regulate through introducing spending caps to encourage more responsible consumer spending habits (Globe Newswire, 2025).   

  • Zip Pay and Humm have achieved expansion mainly due to strategic acquisitions, which have enabled them to penetrate the market rapidly and diversely across merchant categories. However, they have been criticised for comparatively higher merchant fees and late payment penalties (Globe Newswire, 2025).  

  • PayPal Pay in 4 represents a more recent contender that quickly established scale, becoming Australia’s second-most popular BNPL offering within a year of launching. Its main appeal lies in its zero-late fees and offers merchants seamless integration through PayPal’s payment infrastructure, providing a frictionless transition into BNPL adoption (Santiago, 2025).  

 

As the industry matures, competition advantage increasingly centres on consumer trust, transparency, and perceived fairness of fee structures. PayPal’s fee-free stance pressures incumbents to rethink their BNPL models towards more sustainable, trust-based growth.  

 

 

Demographic and Usage Trends 


One of the most striking trends in BNPL adoption is gender skew. Research shows that women are 68% more likely to use instalment payment services than men (Williams, 2025). 

This direction has not gone unnoticed, with social media often helping to fuel this momentum through normalising BNPL use through parasocial influence from creators and friends (Williams, 2025). Many BNPLs have jumped on this opportunity with investment in influencer marketing campaigns, which lean into playful, gendered messaging such as “cute little payments”, and a surge of “get ready with me” purchases through these services (Williams, 2025). This surge increases the perception that micro-spending can act as a form of expression of one’s identity (Williams, 2025). This trend has tied into cultural phrases like “girl math”, a half-joking, half-serious phrase that justified spending in creative ways: “Didn’t buy that $700 Gucci wallet? Now you can spend that money on a night out. Girl math!” (Williams, 2025).  


While lighthearted on the surface, this sometimes perpetuates the stereotype that money is masculine, and women should spend it, often leading to confusion between consumer empowerment and glamorised overspending (Williams, 2025). 

  


Market expansion and consumption patterns 


While traditionally BNPL was geared to fashion, it is no longer confined to this. It extends this flexibility into new industries and higher-value categories through strategic partnerships such as: 


  • Humm x Lander Toyota: car servicing and repairs 

  • Afterpay x Ikea: Home furnishings and décor 

  • Zip x Qantas: Flights and travel-related services  

 

Expanding these services into partnerships demonstrates the flexibility of BNPL offerings in meeting evolving consumer needs, especially in an era of cost-of-living pressures where smoothing expenses is increasingly valued (Globe Newswire, 2025). Despite its popularity amongst consumers, uptake remains limited on the supply side, with only around 27% of Australian small-to-medium businesses (SMBs) currently offering BNPL solutions at checkout, potentially leaving money on the table for those businesses (Santiago, 2025). While there has been increasing sectoral diversification, it also highlights the widening gap between consumer appetite and business adoption.  

 


Merchant integration strategies  

 

Figure 1. Payment Flows Between Customer, Merchant, and BNPL Provider (RetailDogma,2023)
Figure 1. Payment Flows Between Customer, Merchant, and BNPL Provider (RetailDogma,2023)

Figure 1 illustrates how BNPL providers act as intermediaries between customers and merchants, and their revenue model differs from traditional credit. Instead of charging consumers interest, providers rely on merchant fees, sometimes up to 6% (Soni, 2023). As shown in Figure 1, merchants receive the full payment (minus fees) upfront, while customers repay in installments to the BNPL company. BNPL justifies these comparatively high costs to merchants by advertising BNPL arrangements to increase sales and conversions and enhance customer experience (Soni, 2023). This opportunity cost is clear: many SMBs report increased average order value by 75%, cart conversion rates by 74%, and over 25% of their average online turnover now stems from BNPL transactions, allowing for a more even playing field in competing with larger players (Santiago, 2025). 



Regulatory changes and consumer protections  


Until recently, BNPL operated in a regulatory grey area, avoiding obligations placed on credit providers. However, as of June 2025, several changes will be enacted in Australia, requiring BNPL providers to (Jarni, 2024): 

  • Hold an Australian Credit License 

  • Comply with the National Consumer Credit Protection Act (2009) 

  • Join the Australian Financial Complaints Authority (AFCA) 

  • Ask consumers about income and expenses to assess affordability (do not need to verify this information)  


However, this significant reform change only came after years of campaigning, investigations, and advocacy by CHOICE and other consumer groups, who argued that BNPL “looks like credit, …acts like credit, [and] carries the risks of credit” (Jones, 2023).  

These changes align BNPL more closely with credit cards and personal loans, reduce the risk of unaffordable lending while still allowing access to innovative products, and shift from BNPL’s profit-first model to more balanced customer care (Equifax, 2025).   

  


Impact of BNPL on consumer behaviour 


BNPL’s appeal lies in its perception of being a sensible budgeting tool that allows costs to be spread without incurring interest. For many, this flexibility makes previously inaccessible items feel more affordable.  


Nielsen research shows that 7-in-10 BNPL users admit they could not afford their purchase upfront (Australian Retailers Association, 2020). One user described BNPL as a “bite-sized way to pay for things I could not really afford” (Williams, 2025). 

What is most concerning is BNPL’s creep into essential spending. While it began to finance discretionary items such as festival outfits, luxury accessories, or electronics, a quarter of BNPL customers report using it to shop for food. As critics warn, “one moment, you are financing your Coachella outfit; the next, it is groceries” (Williams, 2025).   

This use of BNPL to finance everyday living expenses highlights BNPL’s double-edged role. While it offers flexibility, it also performs as a gateway to dependency.  

 


Risks and drawbacks of BNPL services  


The risks associated with BNPL are both financial and psychological: 

  • Debt accumulation: multiple BNPL accounts can often snowball into numerous loans, leading to spirals of unmanageable debt (Jarni, 2024).  

  • Credit health impacts: Applications for BNPL in Australia trigger credit checks, with enquiry and repayment histories (late or on-time) now being recorded on the credit report. Like defaults on a credit card, outstanding BNPL debts can impact creditworthiness, affect loan eligibility, and result in collection agency involvement (Equifax, 2025).  

  • Psychological framing: By marketing BNPLs as harmless budgeting, the company hides their reality as credit. The language of “bite-size” payments makes indulgent purchases feel less burdensome (Williams, 2025).  


The dangers became apparent in 2021 when consumer group CHOICE awarded Humm a Shonky Award for signing customers into debt without properly assessing their repayment ability (Jarni, 2024).  

 


Outlook for BNPL services  


Looking ahead, BNPL will continue to expand into non-traditional sectors such as healthcare, travel, and education (Globe Newswire, 2025). Traditional financial institutions, such as Commonwealth Bank, and other new fintech entrants are stepping into this space, creating a crowded and competitive landscape (Globe Newswire, 2025). More technological innovation, especially in artificial intelligence, will become more integrated with BNPL, with features such as AI-driven spending limits or real-time affordability checks as companies try to balance profitability with new regulatory compliance (Globe Newswire, 2025).   

The main challenge will lie in BNPL’s ability to maintain its core appeal of offering flexibility while avoiding the traps of over-lending and consumer harm and shifting away from a gateway drug to debt to a more responsible financial product (Williams, 2025).  



Conclusion  


BNPL has rapidly evolved from a niche fintech offering into a mainstream financial service that has reshaped retail, banking, and consumer behaviours. It provides consumers with flexibility and access, and for merchants, it can help drive sales and customer loyalty.  

Nevertheless, it is essential to remember that these benefits come with risks. From encouraging overconsumption to embedding debt into everyday purchases, there remains a darker side to BNPLs that should not be ignored. While the 2025 regulatory reforms are major turning points, due diligence should not stop there.  

For young women, who make up the majority of BNPL users, this is not about avoiding BNPL altogether, but about using it strategically and consciously.


With a few practical tips (Equifax, 2025): 

  • Treat it like any payment: add the BNPL repayments to your budget so they do not sneak up on you  

  • Keep it simple: try to stick to one BNPL account to avoid juggling multiple due dates  

  • Set up auto-payment to reduce the risk of late fees or accidental defaults  

  • Know the terms: Read up on the terms and conditions of each provider to help stay in control  

 

When used with awareness, BNPL can be a valuable tool for adding flexibility without long-term consequences. However, the BNPL’s story is still unfolding. As the sector grows, consumers and businesses must remain critical, informed, and proactive in ensuring BNPLs remain a tool for empowerment, not entrapment.    



References 

Australian Retailers Association. (2020, March 10). The rise of buy now, pay later services in Australia opens up the impulse opportunity. Australian Retailers Association; Agend. https://www.retail.org.au/news-and-insights/the-rise-of-buy-now-pay-later-services-in-australia-opens-up-the-impulse-opportunity 


Equifax. (2025, June 3). Does buy now pay later affect your credit score? Equifax Personal. https://www.equifax.com.au/personal/buy-now-pay-later-australia 


Globe Newswire. (2025, February 17). Australia buy now pay later business report 2025-2030: Expansion into diverse retail sectors, key players and new entrants, current state of the BNPL market, strategic partnerships with major retailers. Fintechfutures.com. https://www.fintechfutures.com/press-releases/australia-buy-now-pay-later-business-report-2025-2030-expansion-into-diverse-retail-sectors-key-players-and-new-entrants-current-state-of-the-bnpl-market-strategic-partnerships-with-major-retailers 


Jarni, J. (2024, December 2). Buy now, pay later products like Afterpay finally regulated. CHOICE; CHOICE Australia. https://www.choice.com.au/money/credit-cards-and-loans/personal-loans/articles/bnpl-legislation-passes-parliament 



Omarova, S. T. (2018). New tech v. new deal: Fintech as a systemic phenomenon. Yale Journal of Regulation, 36(2). https://doi.org/10.31228/osf.io/9v3p2 


Santiago, P. (2025, September 9). BNPL: A game changer to boost sales and provide flexible payment options. Inside Retail Australia. https://insideretail.com.au/business/bnpl-a-game-changer-to-boost-sales-and-give-customers-flexible-payment-options-202506 


Soni, S. (2023). Regulating buy now, pay later: Consumer financial protection in the era of fintech. SSRN Electronic Journal, 123(7). https://doi.org/10.2139/ssrn.4359956 


Williams, A. J. (2025, August 16). The rise of “cute debt.” The Atlantic; the Atlantic. https://www.theatlantic.com/ideas/archive/2025/08/buy-now-pay-later-women-shopping-debt/683883/ 


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