Sales through buy-now pay-later services have soared during the Covid-19 pandemic as shoppers have flocked to shop online amid restrictions.
NZ Post figures show 170,000 New Zealanders began shopping online for the first time this year and that online transactions now account for 11.6 per cent of all retail sales.
A report by global market research firm IbisWorld says 11 per cent of online shopping revenue was conducted through buy-now pay-later channels between 2019 and 2020.
Total spend through the third-party platforms rose by 105 per cent in 2019 - and is expected to have surged even faster in the current year.
While volumes of online transactions have increased in 2020, so has the amount of money being spent online. NZ Post figures show the overall online spend is up 30 per cent on this time last year.
IbisWorld says growth in online shopping has consistently eclipsed growth in retail trade.
About 20 per cent of all trade clothing and footwear retailing trade was conducted through buy-now pay-later platforms last year.
During the lockdown period in the first-half of the year, many clothing retailers established an online presence to preserve viability. Most retailers have retained their online presence, and are expected to see further growth in online shopping during level 3 restrictions in Auckland, it outlined.
The research found there had been "a seismic shift in the Kiwi retail landscape" and the online shopping industry was expected to grow by 6.7 per cent in 2020-21 to $5.3 billion.
Amid the disruption caused by the Covid-19 pandemic, the transition to online retail represents a huge growth opportunity for buy-now pay-later providers. However, this may create headaches for credit card providers, as well as smaller retailers forced to bear the cost, IbisWorld senior retail analyst Yin Yeoh said.
"Buy-now pay-later appears to be a net positive for most retailers, by driving incremental sales from customers that would otherwise not occur. However, the cost, which is borne by retailers rather than customers, may be a net loss for smaller operators," Yeoh said.
While buy-now pay-later platforms appear to benefit the shopper, Retail NZ chief executive Greg Harford said they came with a high price point for retailers. They charged a substantial fee to the retailer for the service, which puts pressure on margins and ultimately makes goods more expensive for the consumer, he said.
Expected decline in spending
IbisWorld says the adoption of such schemes is expected to accelerate. However, demand may be hindered by weak retail expenditure by households in 2020-21.
Household consumption expenditure in New Zealand is expected to decline by 6.6 per cent in 2020-21, before recovering by 7.7 per cent in 2021-22. Revenue for the department stores is expected to decline by 15.3 per cent during the current year.
"Consumer sentiment is projected to remain negative throughout 2020-21, with many consumers feeling financially vulnerable. Consequently, consumers are less likely to spend on discretionary items,' said Yeoh.
Households facing financial difficulties are expected to be a key growth market for buy-now pay-later platforms, with some households likely to resort to the use of these services while purchasing essential items, including groceries, she said.
Consumer NZ chief executive Jon Duffy said it was a concerning finding that vulnerable households would likely be using these schemes, particularly for regular expenses such as groceries, as the economic outlook became more unstable.
"It is a concern and it is a similar concern with people using credit cards to pay for groceries when it is not a convenience [reason]," Duffy told the Herald.
"Where people get into trouble is when they don't necessarily have a choice and there is going to be a grocery bill the following week as well. If there's still not enough money to pay for the following week then the debt cycle starts."
Duffy said Consumer NZ recommended that before using any financial products, including pay-later style products or credit cards, that shoppers do some research or talk to budgetary services.
"These products can be perfectly suitable in the right circumstances.
"The problem, especially in uncertain economic times, is that people might commit to a purchase that actually they can't afford and that will catch up with them because there are other demands that are unforeseen on their salary."