Australia's buy now, pay later (BNPL) boom has been a fascinating phenomenon, but is it reaching its peak? The recent developments and trends suggest that this innovative payment method might be facing some challenges.
The Rise and Slowdown of BNPL
The BNPL sector has seen an incredible rise over the past decade, promising a new way to shop and pay. However, growth has slowed, and some players have already exited the market. According to the Reserve Bank, Australian spending through BNPL platforms grew by $3 billion annually in the late 2010s, but this growth has now slowed to $1.5 billion in 2025.
What's interesting is that BNPL was once touted as a potential replacement for credit cards, but Australians still spent 20 times more via credit cards last year compared to BNPL. This raises a question: has BNPL reached its limit in terms of market share and consumer appeal?
Regulatory Reforms and Their Impact
One key factor in the slowdown is the introduction of regulations in 2025. These reforms aimed to prevent companies from approving customers for funds they couldn't afford to repay. By defining BNPL as a form of credit, companies are now required to perform credit checks and report new accounts to credit agencies.
Kevin James, an analyst at Equifax, believes these reforms have taken away the unique appeal of BNPL, which was its instant approval process. As a result, some customers have turned to other forms of lending, such as credit cards and personal loans.
Late Fees and Customer Experience
While BNPL offers the convenience of interest-free payments, users can face late payment fees or even be cut off from the platform if they fail to repay on time. Afterpay, for instance, reported that 2.9% of its customers were three months late on repayments in June 2025, compared to 2.1% for credit cards. This highlights a potential downside to the BNPL model and could impact customer loyalty.
Expanding Horizons and Merchant Fees
With uptake slowing, BNPL companies are focusing on expanding the range of outlets that accept their services and encouraging existing customers to spend more. Businesses pay an average fee of 3% of a transaction's value when customers use BNPL, which is significantly higher than credit card fees (1%) and debit card fees. In exchange, BNPL platforms hope to attract more spending from their users.
However, as the cost of living rises, customers might be more cautious about their spending, and the higher fees charged by BNPL platforms could become a deterrent for businesses, especially with the Reserve Bank's ban on card surcharging, which will make card transactions even cheaper.
The Future of BNPL
Experts have differing opinions on the future of the BNPL industry. Some believe it can survive at a slower pace, as consumers will still want the flexibility of spreading out their spending. Others, like Grant Halverson, argue that the sector is "dying slowly" and that remaining operators will need to introduce fees or new products to generate revenue from a stagnating user base.
The renaming of the Sydney Olympic Park arena to Afterpay Arena is a symbolic move, showing that BNPL has become part of the financial establishment. As Professor Angel Zhong suggests, BNPL is now a more mature and regulated industry, and reaching saturation makes it challenging to attract new customers.
Conclusion
The BNPL boom in Australia has been an exciting development, offering a new way to shop and pay. However, with growth slowing, regulatory reforms, and changing consumer behavior, the industry might be entering a new phase. While some experts predict a slower but steady growth, others believe the sector will need to adapt and evolve to survive. The future of BNPL in Australia remains an intriguing topic, and only time will tell how this innovative payment method will fare in the long run.
