Buy now, pay later. Is it the real deal?

By Dale Gillham. Published at Oct 28, 2019, in Market Wrap

With the strong rise of Afterpay and Zip Pay, along with talk of the Latitude IPO that was withdrawn last week, the interest in the buy now pay later space has exploded.

So, is this model really good for consumers and should investors continue to get caught up in the hype.

This space has been heavily reported on in the media over the past two years, with overall news being positive for both investors and consumers alike. But have we really dissected this model to decide if it is in the best interests of consumers. In other words, is this method of payment the real deal or are we being fooled by their clever marketing tactics?

If I search online, I can easily apply for a credit card with a minimum limit of $500 with an interest free period of up to 55 days and an interest rate as low as 9.89 per cent. However, when looking at offers in the buy now, pay later space, merchants such as Afterpay currently require users to repay their purchases fortnightly over four repayments. If the user misses a payment, they are required to pay some pretty hefty late fees.

According to their terms, for each order below $40, a maximum of one $10 late fee may be applied per order; for each order of $40 or above, the total of the late fees that may be applied are capped at 25 per cent of the original order value or $68, whichever is less. The important point to note is that the charge is per order.

So in reality, the offer by Afterpay can actually end up costing you much more than applying for an interest free credit card, particularly as it is common knowledge that consumers do not pay off their interest free loans.

Given that the buy now, pay later space has become very attractive for millennials, in particular, in my opinion, we are simply creating another generation of people living from pay cheque to pay cheque. In other words, they are being encouraged to spend rather than save their money for the future.

And like any line of credit option, they have the potential to damage the credit score of the consumer and affect their ability to get a loan, with many not really appreciating the downside risk of these facilities.

So is the party well and truly over for the companies in this space? The more these companies grow, the more attention they will attract from the regulators, such as ASIC and the ACCC, which will see the costs of compliance rise among many other things. While I think there is still value in this sector, I believe now is the time to acknowledge that every pot comes to the boil at some point in time and I believe the buy now pay later space is getting really close.

Looking at the Australian sectors this week, after being the worst sector last week, Materials has risen nearly 2 per cent to lead the market - although this could just be a short term rise in the sector, so sit tight and wait. Energy has continued its rise with Industrials not far behind as both are up over 1.5 per cent so far this week. Information technology was, once again, the worst sector falling over 3.5 per cent so far this week, with Communication Services and Consumer Staples also weak, down over 1 per cent.

Looking at the ASX top 100, CYBG has continued to rise and is up over 10 per cent so far this week and over 45 per cent over the past three weeks. Once again, I caution investors as this is most likely a false rally given how far the stock has fallen previously. JB Hi-Fi has also continued its strong rise, up over 7 per cent with Oz Minerals and Whitehaven (ASX:WHC) looking good, both up over 6 per cent.

So what’s next for the Australian stock market?
The Australian market displayed lots of indecision last week, and while it has technically traded up, it has been far from convincing. Regular readers will know I expected the market to fall into a low by now, yet it is holding up although it is still trading below the high that occurred on 20 September, and the all-time high on 30 July.

This type of pattern indicates that while the market it is not strong, it is also not weak. That said, I still expect the market to pull back this month or next month into the yearly low. Given that it has not fallen as yet, it is possible that the low may occur later than I expected, with the fall unfolding by the third week of November with my price target remaining unchanged. Consequently, we should see it fall to between 6,400 and 6,200 points before turning to rise up into 2020.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in book stores and online at

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