Full story: https://grafa.com/insights/buy-now--pay-later-creating--phantom-debt--crisis--220780

The allure of instant gratification is a powerful force, and the “Buy Now, Pay Later” (BNPL) industry has capitalised on it brilliantly.

These services, allowing consumers to split purchases into bite-sized instalments, have surged in popularity.

However, a recent development in the United States raises a concerning question: could BNPL be creating a hidden debt crisis in Australia as well?

News outlets in the US are reporting a phenomenon which a Wells Fargo analyst dubbed “phantom debt,” referring to BNPL loans that evade traditional credit reporting.

This lack of transparency makes it difficult for financial institutions and regulators to gauge the true extent of consumer indebtedness.

Here in Australia, the BNPL market is booming, remember that Australian company Afterpay, now Block, invented the concept.

BNPL providers offer consumers the seemingly painless option to defer payments.

But what if, like in the US, these seemingly small purchases accumulate into a significant, yet invisible, burden?

The potential dangers of BNPL are twofold.

Firstly, the ease of access can lead to impulsive spending.

Splitting a purchase into four payments feels less daunting than a hefty upfront cost, potentially encouraging consumers to overspend.

Secondly, the lack of credit reporting could disrupt responsible financial planning.

Without a clear picture of outstanding BNPL debts, it becomes difficult to assess one’s overall financial health, potentially impacting important decisions like applying for a mortgage.

While the BNPL industry offers undeniable convenience, Australian regulators will likely be paying close attention to the warnings emanating from the US.

A “phantom debt” crisis could have serious repercussions for both consumers and the broader economy.

Implementing mandatory reporting of BNPL transactions to credit bureaus is a crucial first step.

This would provide consumers with a clearer picture of their financial obligations and allow lenders to make informed decisions.

Additionally, promoting financial literacy campaigns that educate consumers about the responsible use of BNPL services is essential.

The Australian BNPL sector is still young, and fostering a responsible and transparent environment is in the best interest of consumers and the broader economy.

Because like they say, you never find the phantom, he finds you.