Millennials Favour Interest-Free BNPL Services Over Credit Cards by

Millennials are looking for more transparent and flexible ways to pay. And with more than half of the world's population (over 3.8 billion people) under the age of 30, they're leading a transformation to digital payments.

Buy Now Pay Later

​​​​​The credit card has long been one of the banking industry's most lucrative products, but it now seems to be in long-term decline. A combination of stricter regulation, digital competition, value concerns and the aversion to debt held by Millennials are to blame. 

​Millennials are a diverse group that's not necessarily indicative of the 'young, reckless spender' stereotype often attached to them. The youngest of this group is turning 24 this year, while the oldest is nearly 40.

Compared to decades ago, Millennials at present need to spend more money on necessities, such as education and real estate. Regardless, Australians dumped more than 100,000 credit cards in May alone, taking the number of cards in operation back to levels that haven't been seen since 2009.

While the use of traditional credit cards decreases, new interest-free payment methods have a chance to gain market share. As more people shop online during the COVID-19 crisis, individuals of all ages are turning to buy now, pay later services.

In June of 2020, the Roy Morgan Digital Payments Report showed that over 12.3 million Australians (59%) are now aware of buy now, pay later services such as Zip – up 22.1% points in only 18 months.

Australians between the ages of 14-34 makeup 55.9% of buy now, pay later users. Those aged between 25-34 account for 33.5%.

The obvious lure for users is that like a credit card, you can purchase products without having to pay the full amount upfront. But buy now pay later adds the 'now' element to the credit card's 'pay later' approach, and eliminates much of the purchase friction. Plus, they're often interest-free. 

Buy now, pay later platforms are primarily available through smartphone apps for use either at the point of sale or online, provided that the merchant allows this payment method. With more merchants partnering with these platforms (Zip alone has more than 19,000 partners across Australia), this is becoming less of an issue each week. 

Another reason why Millennials favour interest-free, online services such as Zip is for their ability to help with budgeting. In contrast to the popular "BNPL is reckless" stereotype, around 30% of Millennials use online tools to track their spending. For example, individuals who aren't paid weekly or even monthly may find that paying for something in installments is more beneficial compared to paying upfront and in full.

With the growth of buy now pay later platforms, the established and traditional banks have a tough time convincing the new generation to adapt to their ways of banking.

Larry Diamond
Level 14, 10 Spring Street, Sydney NSW 2000
(02) 8294 2345.