The Government is eyeing regulation of 'buy now, pay later' (BNPL) products over concerns indebted shoppers are forgoing necessities like groceries.
Documents obtained by Newshub under the Official Information Act show the popularity of interest-free payment offerings boomed after last year's Level 4 lockdown - but so too has officials' concerns.
A briefing in March from the Ministry of Business, Innovation and Employment (MBIE) to Commerce and Consumer Affairs Minister David Clark warned products like AfterPay made accumulating debt easy.
Its main gripe was the "lack of affordability assessments" by providers.
Another briefing in February outlined how using the products to make payments could push consumers into financial hardship.
"Consumers are going without essential goods in order to make their BNPL payments and defaulting on household bills, credit card and home loan repayments.
"There is also increasing evidence of BNPL customers using credit to make their BNPL repayments."
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They raised concern that consumers did not view payments made with these products as debt - a sentiment shared by Consumer NZ.
"When you break up those payments into bite-sized pieces, it can incentivise people to overspend," Consumer NZ's Gemma Rasmussen said.
BNPL products are a modern form of laybuy. A consumer can purchase a product immediately through an independent provider, and pay for it over a handful of weeks in fixed interest-free repayments.
Spending is capped at a maximum of $2000 with AfterPay.
If a payment is missed, a late fee is charged. However, those are typically capped too.
The majority of people using BNPL products are under 45 and female, according to MBIE.
There are five major providers operating in New Zealand; Australia's AfterPay holds about 40 percent of the market and New Zealand-based Laybuy has about the same, while Zip, Humm and GenoaPay share the rest.
They say the rate of customers defaulting on all payments is less than 1 percent.
"Every day there are people defaulting on mortgages. Should we stop doing mortgages?" asked Humm group deputy chief executive Chris Lamers.
Laybuy managing director Gary Rohloff said it declined customers who did not meet its affordability criteria.
"We never charge interest, we credit and affordability check our customers, and more importantly, if they don't pay or they can't pay, we suspend their account so they can't get into a debt spiral."
MBIE said missed payment rates were between 9 and 15 percent, however it lacked other financial data.
Providers said they make most of their money from retailers, who pay a fee to offer the products with the intention of increasing sales, especially of costlier items.
Laybuy charged merchants about 4 percent of the total sales value.
BNPL products fall outside the scope of responsible lending laws because they do not charge interest, and are therefore not considered a credit contract.
Newshub can reveal Minister Clark met with leaders from six BNPL providers in the executive wing of the Beehive in May, to warn them they could be forced under responsible lending laws.
"I'm really clear that if we need to regulate to ensure that there isn't consumer harm, that's something we're prepared to consider," Minister Clark said.
Providers were not surprised at the increasing interest from officials.
"This is the biggest change to the financial services sector in more than a decade, and like any change, there's always people that want to make sure it's regulated," Lamers said.
"When Uber came out, how many taxi drivers wanted regulation on Uber? Did customers want more regulation on Uber? No."
MBIE is preparing a discussion document to be released for public consultation later this year.
Newshub understands it has asked providers for extra financial information to include in the document, including their share of earnings between late fees and merchant fees.