The Way We Pay: Changing Buyer Behaviour

Life is busy. Ask anyone, young or old, and they’ll agree – despite lockdowns, it just keeps getting busier.

Perhaps the most significant shift has come with consumers opting for buy now, pay later (BNPL) services, fueled by a raft of new players entering the market in 2020

To cope with the hectic pace, we’ve been looking for ways to lessen the burden of mundane day-to-day tasks for some years. Now, spurred on by COVID lockdowns, we go online to compare and contrast product features and benefits before purchasing, then arrange home delivery or click-and-collect to reduce the risk of infection and claw back precious time.

Barraged by constant advice on personal hygiene, we’ve transitioned to a ‘less cash society’ and with that has come the desire for payment options that offer greater flexibility, more speed and better value at point-of-sale.

As providers of goods and services, optometrists and ophthalmologists need to take time now to understand how purchasing behaviours have changed, and to put systems in place to meet the new order.

CHANGING PAYMENT METHODS

The way we pay for goods and services has been changing for some time. According to Business IT (BIT), at least every two in three Australians now favour contactless technology and other digital payment methods over cash.²

The Reserve Bank of Australia has also confirmed the demise of cash used for dayto- day transactions, with the 2019 Consumer Payments Survey (CPS) showing that debit cards were the most frequently used means of payment in that year, overtaking cash as the single most commonly used payment method for the first time.³

Indeed, debit and credit cards combined were used for 63% of consumer payments in 2019, compared with 52% three years prior.³

The 2019 CPS also showed Australian consumers using new digital payment methods led by mobile phones and payment-enabled wearable devices with integrated technology such as Apple Pay, Samsung Pay and Google Pay to make ‘tap and go’ payments.³ 

Perhaps the most significant shift has come with consumers opting for buy now, pay later (BNPL) services, fueled by a raft of new players entering the market in 2020.

SAVINGS OR CREDIT

As highlighted by the Commonwealth Bank,¹  economic pressures associated with the pandemic have put the handbrake on consumer spending, at least for now.

Nick Grant, Head of Healthcare at the BNPL provider Openpay, says this was to be expected. “It’s not surprising that consumer spending has taken a huge hit as a result of the pandemic. Nearly 70% of Aussies say that they are more conscious of their spending now than they were prepandemic. 57% agreed that they are limiting spending to essentials only. Over 50% of Aussies have reported deferring spending as a result of the pandemic,”⁴ he said.

He continued, “Common categories of spending deferral include: upgrading/ replacing furniture (33%), home renovations or home improvements (29%). Worryingly, major dental work (22%), car maintenance (21%) and car repairs (20%) have been deferred by some, which could have a detrimental effect on people’s health and safety.⁴ This highlights an opportunity for alternative ways for people to spread the cost of essential dental, health and auto services over a longer period, helping them feel empowered and in control of their finances.”

Interestingly, consumers are turning to credit. Equifax, a global data, analytics and technology company, reported that, for the first time in three years, consumer credit demand moved out of negative territory in the June 2021 quarter, with applications for credit cards, BNPL, personal loans, auto loans and mortgages all experiencing double-digit growth.⁵

In its Quarterly Consumer Credit Demand Index (June 2021),⁵ Equifax reported:

• Overall consumer credit applications increased by +29.1% (vs June quarter 2020),
• Credit card applications rose by +19.9% (vs June quarter 2020),
• Personal loan applications were up +61.8% (vs June quarter 2020),
• Buy now pay later applications grew +13.5% (vs June quarter 2020),
• Auto loan applications increased by +16.7% (vs June quarter 2020), and
• Mortgage applications were up +33.4% (vs June quarter 2020).

Noting that credit card demand defied its usual downward spiral, Equifax’s report highlights the broadening age groups accessing BNPL options.

“BNPL applications grew steadily (+13.5%) in the June 2021 quarter. Queensland recorded the highest BNPL demand at 21.7%, and the ACT was the only area in Australia where demand went backwards (-0.5%).⁵

“While Generation Y holds the largest proportion of BNPL applications (+39.0%), demand is gradually shrinking across this cohort. Generation Z is moving ever closer to taking up the mantle, recording an increase in applications every quarter since 2018. In the June 2021 quarter, Generation Z accounted for +27.0% of demand.”⁵

THE LURE OF BNPL

Where consumers once used credit cards, and to a lesser extent personal loans, to cover unexpected costs or major purchases, BNPL has changed all of this.

BNPL blends the positive aspects of traditional layby with the positives of credit cards, enabling consumers to take their purchase home – or commence a treatment or service immediately – and pay for it using a structured repayment plan with no interest charges (though users are charged a penalty if they are late or miss a payment).

From the retailer’s perspective this is great news because it means the goods have left the business (they’re not cluttering the shelves), and the onus is no-longer on them to ensure payments are made – that’s up to the BNPL provider. Merchant fees for BNPL tend to be higher than credit cards, however both BNPL providers and retailers report that average transaction values increase, making it all worthwhile. What started as a credit facility marketed to younger consumers buying small purchases is now becoming mainstream, as Leigh Dewar, Healthcare Business Leader at Latitude Financial Services, explained.

BNPL usage began with a younger demographic (<30 years-old), however throughout 2021 a more mature group of consumers began to enter the category

“BNPL usage began with a younger demographic (<30 years-old), however throughout 2021 a more mature group of consumers began to enter the category. In the last quarter, BNPL use among 35–44 year-olds experienced significant growth (45% have used at least one BNPL service vs. 36% three months ago), and older groups saw a rapid increase with a quarter of those aged 55+ (24%) now using a BNPL service, up from 13% in the past quarter.” Mr Dewar continued, “Our insights have found that most people have both credit card and BNPL.”⁶

Mr Grant reported “universal awareness of BNPL across all age groups” stating that 69% of Openpay customers are aged 25–52 years, with a median age 39 years; and 70% are female.⁷

“With cash no longer king, and credit card regret increasing, BNPL has become an attractive and strongly proliferating payment option for Australians which benefits businesses and consumers alike. BNPL can enable people to continue to spend on essential health and auto services as well as big ticket items, in a budgeted way, so as to pay over a timeframe that suits them, with no interest,” said Mr Grant.

Indeed, the Australian Securities and Investment Commission (ASIC) reported that the number of buy now pay later transactions increased from 16.8 million in the 2017-18 financial year to 32.0 million in the financial year 2018-19, representing an increase of 90%.⁸ 

That growth is continuing, and interestingly, the way people are using BNPL is expanding with more people choosing this option to cover the cost of essential health services as well as big ticket items, as Mr Dewar pointed out.

“Our research shows a number of different reasons around why consumers choose BNPL. For instance, it shows that 54% of Australians agreed that BNPL provides access to medical procedures they would not be able to afford normally. It also found that 58% of Australians agreed that BNPL helps to manage finances.”⁹ 

Openpay’s consumer research How They’ll Spend It, found that one third of people surveyed had used BNPL recently for healthcare.

“Over 60% of Melburnians and Sydneysiders have increased usage of BNPL during the pandemic, with 31% having at least one BNPL account,” said Mr Grant, adding that 41% of people reported using BNPL methods more now than pre-pandemic.

“Nearly two million Australians used a BNPL last year, according to research from Worldpay, which predicts the Australian market will double in the next three years,”¹⁰ he said.

Providing payment options to patients helps improve accessibility to vital optometry and ophthalmology services

PITFALLS

Just as people can build up hefty debts with credit cards that only require minimum monthly payments and charge exorbitant interest on the balance, it’s not all roses for every BNPL user.

ASIC’s consumer research indicated that 21% of the surveyed BNPL users had missed a payment in the previous 12 months. Among these consumers: 47% were aged between 18–29; 39% also held a small and/or medium amount credit contract; 34% made at least six buy now pay later purchases in the previous six months; and 55% had used at least two different BNPL arrangements in the last six months.

In the 2018–19 financial year, missed payment fee revenue for all BNPL providers in the review totalled over $43 million, a growth of 38% compared to the previous financial year.⁸ 

The Australian Finance Industry Association’s (AFIA) Code of Practice for the BNPL sector came into effect on 1 March 2021.¹¹ According to AFIA CEO Diane Tate, “All Code Compliant BNPL providers conduct suitability assessments before a potential customer can make a purchase and there will be additional checks to prevent customers extending themselves further, for instance, if they are showing signs of difficulty making repayments. On top of that, there are detailed commitments to help people that find themselves in financial hardship. And it is mandatory for all providers to be members of the external dispute resolution service – the Australian Financial Complaints Authority (AFCA).”

Mr Grant stressed Openpay’s approach to financing is responsible. “No doubt spending habits will continue to change and evolve as the pandemic unfolds, but we have never been more strongly committed to a responsible approach in this fast-growing BNPL sector and delivering on our mission to change the way people pay, for better. With Christmas around the corner it is important to provide consumers with responsible ways to manage their cash flow over a longer period, enabling them to afford what they want and need.”

DO PRACTICES NEED BNPL?

Mr Grant says yes. “The changing payments landscape means businesses need a good mix of options for consumers. Research shows 81% of customers feel that BNPL is more accessible than credit cards.¹² Whilst credit card usage is still fairly common, usage is more prevalent among 31–50 yearolds (65%) than those aged 18–30 (43%). Of 18–30 year-olds, 33% wish they had never got a credit card.⁴ The perception has shifted as attitudes towards credit cards change. BNPL has opened the option of not missing out on purchasing to this group.”

…83% of patients opting for payment plans did not previously have an Openpay account. The pilot also resulted in a substantial uptick of overall bookings for participating practices across the board…

For optometry and ophthalmology, it’s now about ensuring you’re equipped to accept as many payment options as possible. The more payment methods you can provide, the more sales you’ll attract, and the higher the average transactional value.

Latitude already has arrangements in place with 1,200+ optometrists including large, mid-sized and independent providers. Additionally, the company is providing payment options for the ophthalmologist sector. LatitudePay gives patients the ability to access services up to AU$10K when they need them, then pay back over six to 24 months, interest free.

“Providing payment options to patients helps improve accessibility to vital optometry and ophthalmology services,” said Mr Dewar. “This allows practices to focus on providing the best possible service to your patients rather than managing their funding challenges.”

Openpay is currently available within 200+ optometry and eye care locations within Australia, allowing patients to spread their payments with options up to 24 months, depending on the service or procedure.

BNPL AND MYHEALTH1ST

Openpay, LatitudePay and AfterPay have all partnered with MyHealth1st to advise patients of practices that have BNPL options when they are online or on the phone making an appointment to see an optometrist, dentist, specialist or other allied health modality.

Patients and prospective patients booking an optometry appointment will be invited to sign-up for a BNPL service, or nominate their preferred BNPL provider (LatitudePay, Openpay or AfterPay).

Additionally, practices that nominate a preferred BNPL provider for their business will unlock a series of benefits, including being promoted to the BNPL provider’s existing member-base.

“By partnering with MyHealth1st, we aim to make patients aware that LatitudePay is available as a payment option prior to their appointment,” explained Mr Dewar. “We provide all the information so they can consider the flexibility this provides with their purchasing decisions, e.g. selecting the best-quality lenses, frames or additional eyewear. Providing time for patients to consider this before payment is required ensures a better experience for patients and helps drive increased revenue for practices.”

As the first BNPL provider to integrate with the optical practice management system Optomate, Mr Dewar said using and transacting on LatitudePay is as seamless and intuitive as possible. This enables clinic staff to spend more time with patients, rather than processing payments.

Demonstrated Value 

Mr Grant said research and an initial BNPL pilot program demonstrated benefits for all parties, including practices and patients.

“Based on recent research we found there was a need to combine payments and digital booking solutions, as 39% of consumers prefer using BNPL for healthcare costs.¹³ Additionally, 32% of customers said they would consider switching health providers for access to flexible, digital payment plans.¹⁴

“We know that patients defer healthcare treatment due to cost, so being able to communicate flexible payment options earlier in the patient booking journey helps to solve a problem for both patients accessing care, and practices accessing patients.” Mr Grant continued, “An initial pilot that ran between November 2020 and February 2021 saw the involvement of 68 MyHealth1st healthcare practices across the country. An important and revealing fact uncovered during the pilot program was that 60% of the bookings indicating Openpay as a payment method were for new patients. The number of new bookings opting for BNPL plans appears to conform to the overall trend of people delaying or declining medical help due to cost. This is further reinforced by the fact that 83% of patients opting for payment plans did not previously have an Openpay account. The pilot also resulted in a substantial uptick of overall bookings for participating practices across the board, with one standout being a dental practice that saw a 56% uplift in bookings overall.”

Klaus Bartosch, Chief Executive Officer and co-founder of MyHealth1st, said the opportunity to bring BNPL to optometry and ophthalmology is an exciting one for his company.

“The majority of product and service retailers accept multiple credit cards and now it’s time to take on board the shifting landscape. Offer your patients multiple BNPL options to optimise convenience. This will ensure your patients are able to access the eye health products and services they need to maximise vision without financial stress. It will also help grow your business during what is an increasingly competitive and challenging period,” he said.

References 

1. Household Spending Intentions Series. July 2021. Commonwealth Bank of Australia. www.commbank. com.au/content/dam/commbank-assets/business/ latest/2021-08/hsi-aug21.pdf 
2. Graham T. Australian payments in 2021 and beyond. Business IT. 17 December, 2020. www.bit.com.au/guide/ australian-payments-in-2021-and-beyond-559150 
3. Caddy J, Delaney L and Fisher C. Research Discussion Paper – RDP 2020-06. Consumer Payment Behaviour in Australia: Evidence from the 2019 Consumer Payments Survey. Reserve Bank of Australia. www.rba.gov.au/ publications/rdp/2020/2020-06/full.html 
4. Openpay, September 2020, “How They’ll Spend It” 
5. www.equifax.com.au/knowledge-hub/news-and-media/ double-digit-growth-consumer-credit-demand 
6. Latitude Brand Health Tracker, Aug ’21, Base: Australian Consumer Representative (n=1,900) BNPL service defined here as any ‘pay later’ service which allows a customer to buy what they want now and pay later over a series instalment. 
7. Openpay FY21 Annual Report 
8. Buy now pay later: An industry update Report 672. Australian Securities and Investment Commission, November 2020 download.asic.gov.au/media/5852803/ rep672-published-16-november-2020-2.pdf 
9. LatitudePay Big Ticket Market Test, Conducted by Lewers Research, Mar ‘21 Base: Australian Consumer Representative (n=1,444) 
10. FIS/Worldpay Global Payments Report. worldpay. globalpaymentsreport.com/en 
11. afia.asn.au/AFIA-Buy-Now-Pay-Later-Code-of-Practice 
12. Demystifying Buy Now, Pay Later. Honeycomb AFIA, 2021 
13. Supergrowth, Openpay Brand Research, 2-5th October 2020 
14. Healthcare Payment Experience Report – Pymnts.com January 2021