The Psychology Behind why we are so Obsessed with Buy Now Pay Later

Why on earth are we so obsessed with Buy Now Pay Later? Can this method of so-called pseudo credit be used for good, or is a slippery slope into debt? Associate Professor Billy Sung from Curtin University shares his research on the psychology behind BNPL services.
The following is a transcript taken from episode 31 of the We Talk Cents podcast. The transcript is created by AI software so it might not be perfect - please forgive any imperfections or grammatical errors.

Blaize Pengilly  00:09

Personal Finance budgeting cash flow and investing don't have to be scary words. The We Talk Cents podcast is here to help you learn more about money and take control of your personal finances.


Blaize Pengilly  00:26

We Talk Cents podcast is not a financial advisor. This podcast is made for entertainment and educational purposes only. All information shared is of a general nature and does not take into account your personal situation. You should consider whether the information is appropriate for your needs and where appropriate seek professional advice from a financial advisor. For more information,


Dan Jovevski  00:46

Please check out


Blaize Pengilly  00:51

Good I get a Hello thank you so much for tuning in to this episode of We Talk Cents We are at Episode 31. I am your host Blaize. I know very little about money but that is okay. Because we are joined by Dan the money expert. Dan, how are you today?


Dan Jovevski  01:07

Blaize I am doing well. I've had my very first COVID test ever. And after waiting in a line of six hours on the air sympathizing with other Australians who have been through that entire process. So that's that's my high level wildlife of the week.


Blaize Pengilly  01:24

Wow, the six hours of quiet quiet await Good on you for going and getting a test though. Have you got the results yet and


Dan Jovevski  01:29

how I'm negative and feeling really good. And it's off the back of the Victorian lockdown. So hopefully it doesn't spread.


Blaize Pengilly  01:38

Yes, fingers crossed. And I thought so with everyone in Melbourne at the moment entering lockdown again, thank you for locking down and keeping yourselves and everyone else in the country safe. Hopefully this is short lived and that we get it under control. So we stopped the spread. Now, Dan, today's episode, we are talking about why why are we so obsessed with buy now pay later, you know these services have massively increased the uptake of these services massively increased over the last couple months. So we're inviting a special guest from Curtin University to come and talk about why we are so obsessed with it and the consumer psychology behind it, which I think will be super, super fascinating. But as always, before we get into that news headlines, what is it that has caught your eye? What money news is there this week, Dan?


Dan Jovevski  02:29

Well, Blaize I think the one that's going to affect a lot of homeowners and would be homeowners is the expectation that mortgage rates are moving up. Now bank funding cost, which is all of the banks in Australia, they have to borrow money from somewhere in order to lend it out to us. And that'd be borrowing money from international markets or these cheap sources of capital. But around the world, we've seen the price of this money go up.


Blaize Pengilly  02:54

Can I ask sorry, just before we continue, so we so banks borrow money from other international markets? Do they also borrow money from the Reserve Bank of Australia? Is that what the cash rate is? Or am I confused as to how that all works?


Dan Jovevski  03:08

There is an overnight market with the Reserve Bank of Australia. There's a couple of different sources so that the first source is good old Aussie depositors, so people putting their money into savings accounts where we earn our rate of interest. Banks use that as a funding source. But they also Yeah, they also have a source of funding directly from the Reserve Bank of Australia, which is called a term funding facility and allows banks to access capital with the Reserve Bank. But the bulk the bulk of Australia's funding does come from international markets, where the big banks go out there and borrow money from the Europeans from the Americans from the Japanese and all places around the world in order the untalented was, and those markets are heading up. So looks like Aussies are set for potentially, mortgage prices increased. So not great news for current borrowers, and certainly not great news for people looking at rushing to buy a home where the cost of borrowing is going to increase.


Blaize Pengilly  04:12

This is so interesting, I had no idea that we borrowed that banks borrowed from international markets, because I saw this article during the week as well. And I got very confused I thought now would be I thought you know, we're in prime conditions to buy except that the market is quite expensive. But you know, loans are really low. The RBA cash rate is the lowest it's ever been in the history of the cash rates existence. So I thought it would be a really really fantastic time to get a loan if you're looking for something a really, really cheap product. But yeah, if it's predicted to rise, is there any predictions on how much loans may increase by or is it all sort of up in the air still at the moment?


Dan Jovevski  04:54

Well still up in the air but what we can say Blaize is a good bellwether. The Fixed Rate Mortgages when the fixed rate mortgage is lower than your original variable rate mortgage, then it's a good sign that banks are predicting that the future cost of funding is going to be a lot lower. But what we're seeing now is that the fixed rates are starting to climb. And one thing that's really changed in the Australian ecosystem, which is really interesting, is that today 35% of all new mortgages that originated are fixed rate loans, which is quite bizarre, Australia has never been a fixed rate, lending country, we've always stuck to evitable rates, but it seems like over over a third of mortgages now are fixed rate loans. And the prices of those are going up. So we'll be interested to see in the next couple of weeks for the banks decide to do in terms of increasing their rates across all their products.


Blaize Pengilly  05:46

Yeah, for sure. We'll keep across the news and keep you updated on the pod. But for now, let's invite our guests in, shall we?


Dan Jovevski  05:53

Let's do it Blaize.


Blaize Pengilly  06:00

Okay, Dan, cast your mind back a few episodes ago back on episode 26. When we discussed five finance apps you can't live without you made a prediction. You dusted off your crystal ball. And you made a comment about buy now pay later. Can you recall what your prediction was?


Dan Jovevski  06:21

I certainly can. And by no means in my prolific forecast, but I just can't help but see the trend of these massive buying our pilot platforms like to play in zip and Kleiner builds some really deep relationships in affinity with consumers, particularly young consumers. And they're they're really early stage of their financial lives. And as we can see right now, they'll always be buying our product providers are not just looking at the initial product, which is giving people the ability to buy consumer goods in installments, but also thinking about how do they get more involved in people's life to get more added transactional layer without managing their day to day spending. And I think of what we can talk about publicly what's been released ceiling afterpay is looking at moving the space with a new product called Afterpay money. So I think as a prediction standard, I remember correctly, that probably around 30 to 40% of millennials will be using engines ears will be using something like you know, after paying money, your client and money in the future, to manage their financial lives outside of the traditional Big Four establishment brands, which is why I think will be a reality. But time will tell and I would love to get today's guest to give us an opinion on what he thinks of that as well.


Blaize Pengilly  07:38

Good remembering of your prediction, Dan? Yeah, it was that you thought by now pay later or something of the like, will become the predominant payment platform over the next five years. And this got me thinking right, got me curious about buy now pay later because I've seen plenty of news articles saying it's on the rise. And we've pretty much everywhere you make a purchase. You can see every everything is available on buy now pay later. And we've seen the decline of credit cards as well with over 116,000 credit cards canceled every month, during COVID and 2020. So I thought we would invite a guest on to talk to us about buy now pay later, and why we're so obsessed with it. So joining us today on the show is a researcher from wi zone at Curtin University. He specializes in neuro marketing, consumer biometrics, consumer psychology and digital marketing. In the past, he's won a massive array of awards, recognizing his work, including the 2019 ns max emerging marketing educator award, the 2019 occurred an award for excellence and innovation in teaching, and the 2018 School of marketing researcher of the Year Award, I show you those three words are very, very small selection on the large list of his accomplishments, his research that has been published in over 43 peer reviewed articles. So you know, he's an absolute fountain of knowledge. And we're very lucky to have him joining us today. Via videolink. From Perth, welcome, Associate Professor Billy Sung. Hey, going, Billy.


Billy Sung  09:09

Good. Thank you. Thank you, Blaize. Thank you, Dan


Blaize Pengilly  09:11

Thank you so much for joining us, Billy. Now, I'm sure you would have heard Dan's prediction, but I really want to you're the researcher, right? You've got you have all of the information. So I would love to know, why is it that services like zip and afterpay and Klarna, why are they so popular? Why are we so obsessed? And why are they becoming such a predominant way that we are making payments and buying things today? I think one of the key answers to this is really how it actually affects, I guess, the behavior and the psychology of consumers. I know a lot of findings and research has actually shown in decision making in judgment that you know, buying a product or actually even making a decision to purchase a product that actually activate, for example, our brain regions that are involved in reward processing. So one of the key example is called nucleus accumbens. So basically these brain areas that get activated when there's a reward or when we are processing the value of a reward. But what's also interesting is that new marketing and new economics research also showing that when we have to pay for the product, the opposite happens. So it actually the activates the brain areas of what we were processing, and activate the areas for pain. So what we're actually seeing is that there's actually a psychological pain when you're paying for products. And this actually dips into I guess, what we're looking at now buy now pay like this, and actually related to a lot of the other financial modes of payments, such as credit card, so on and so forth. And so what we're seeing here is that by now pay later scheme is actually reducing or taking away the pain, so that we actually feel it in the latest stage. This is really interesting, because Dan, if I recall correctly, in in an earlier episode, we were talking about different styles of budgeting. And one of the styles of budgeting was the cash only method. And part of the reasons why that method was really good is because when you physically hand over $100, note, it's painful to get back a couple of 20s. And or a couple of 10s rather, like the breaking of a significant note is painful, is that whereas if you're tapping a card, and you're not really thinking about it, there's much less pain attached to that purchase, is that the same thing that's happening with buy now pay later services?


Billy Sung  11:36

That's definitely right. At least the research are showing that so earlier research, when there was not really a buy now pay later scheme, but more so comparing cash payment and credit card payment, what they have found is that the mode of payment actually changes or what we call modulates the level of psychological pain that I felt was truly reported by respondents. So what does that mean? Well, when responding or keeping in cash, the same amount for the same product, they actually feel or reports cynically higher psychological pain, however, when they are actually doing it on a credit card, whereby the mode of payment, or that method of payment actually doesn't, doesn't show the respondent that they are actually parting with the cash, because it's basically a cartel. So what is what we're seeing here is simply changing the mode of payment from cash to more abstract kind of payment mode, like credit cards, or even just ecommerce in general. And obviously, these binary payment scheme actually changes the psychological pain that we actually feel when we're parting with our so called money or savings or cash.


Dan Jovevski  12:43

This is pretty fascinating, Billy, and I think what was referring to was the concept of pain of pain. And we recall reading from a book called dollars and cents from Dan Ariely. And that's really interesting, in terms of, really, if we can say this, that the optimization have been our platforms have really sort of tapped into, you know, the human awareness, and taken, I guess, the the bad stuff, I think that we want to avoid, which is the pain of losing cash, but also buying things and consuming. love to get your views on this. Billy, do you think that we're consuming more by virtue of removing this pain of paying and making it really easy for people to, you know, buy things? Or do you think that consumers finding an easier process to manage their own psychological infliction from the pain of pain, maybe delaying that but also getting the benefit of buying good? What's your what's your take on that?


Billy Sung  13:42

We definitely have no statistics to show that or at least at this early stage, we don't have much statistics to show that by now pay later does actually make people spent more or there's not really recent research that really have tapped into these recent buy now pay later scheme. However, from our learnings, from I guess, our behavior on ecommerce and credit card payments, that certainly is a case. So what we're seeing is by actually taking away the psychological pain, we are more prone to actually paying more or actually buying more the for the simple fact of matter. If you think about this, if we're actually making the decision to purchase a product, oh, obtaining a product, we actually get satisfaction and all these reward processing system that are activating. Whereas if you're paying by cash, you have that pain then that kind of balance it out. However, what we're seeing is credit card payment and buy now pay later scheme has the ability to actually take away that psychological pain and in flick at us and I like to stage now here is where the really interesting concept is. So we talked about hyperbolic discounting whereby you know, your reward will reduce it so your perceived reward of actually consuming the product or actually using the product as you actually Go through your daily life and using this product, your satisfaction and your reward will reduce. However, by now pay later skimming credit card, the pain of pain actually comes at a later stage. So what we're actually seeing is that, not only that by not paying it to skimming credit card actually took us away the pain and it is also something we call loss aversion in behavioral science, we, you know, we put much more value and emphasis on losses. And so by taking away losses and pain, we're promoting consumers to have the ability to actually buy more and spend more. However, while time goes on, the product, will reduces in reward, or at least in its value, and you get actually the pain in 30 days, because you have to make the first payment, and you have to actually pay the credit card. And so this is where it gets interesting, because there's actually research that shows that this hyperbolic discounting, that is going on, humans cannot grabs these kind of concepts, or this kind of calculation, and therefore they are more prone to actually use by now play this game. Because that immediate gratification of having to put up and not having to feel that psychological pain of pain, and then the inability to hyperbolically discount a reward and the value of the product and actually estimate the pain that they will feel in 30 days, really drive people to really use these by now painted the scheme and possibly to buy more and consume


Dan Jovevski  16:30

This fascinating and I think if anybody's watched the social dilemma, like I'm just getting a lot of that one of the vibes from from that particular Netflix documentary around maybe the gamification of some of these ways of paying and you know, hacking the human said OS to, to to get people to avoid this psychological pain.


Dan Jovevski  16:56

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Blaize Pengilly  17:14

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Dan Jovevski  17:23

Look, the way I think about it, Billy, and I've discussed this with Blaize before in prior episodes is like when you think about going down shopping mall and you're looking at all the shops, you cannot miss the big signs of these Buy now pay later platforms that basically encourage people to say, Hey, we're in the business, and you can buy our goods using some of these platforms. And every checkout cart you see now there's not just PayPal and a credit card, but there's PayPal and credit card and like 10 other different providers that you can go and check out with. And just from a young person's perspective, so somebody that's the age of, you know, 17 or 18, they're getting to a stage of financial independence, they're working in the very first jobs. There was some research that was issued by ASIC showing the disproportionate nature of young people being affected by these binary ladder platforms. So we'd love to get your views on that. Do you think that there's something Do you think it's as young people, we get more affected by potential issues in this type of payment platforms like we do with credit cards, many, many, many years ago. And this is simply just a new payment method, and that young people need to learn about the process of managing these products in the same way they did with credit cards, what's your take on that?


Billy Sung  18:36

I think certainly I I do see that the buy now pay later scheme is kind of the hype when credit card payments comes along. If you when you're seeing you know, credit card payment first being introduced, what you'll what you'll find is that you know, it is kind of like an innovative payment methods you can actually buy now, and let's say pay later, but obviously if you don't pay you incur interest charges, the buy now pay later scheme kind of is an advanced version of credit card payment whereby it is actually advertised to be you know, a final payment scheme where you can actually instead of having the curse of the compound interest where you probably might need to pay if you don't repay your credit card or you pay your credit card not in full buy now pay later scheme said we noticed this this is probably the pain you know this is to enhance your financial flexibility, or your ability to purchase more product or purchase a product that you might not be able to just buy cash, we're actually offering you I guess, a way to eliminate debt or to purchase products in predictable interest free segment. Now, it's actually interesting on how they promote and advertise their product. First of all, it's financial flexibility. That's definitely something that for younger people, that's a very, very essential and important attribute of a product that or financial product that they would actually take But what's also interesting is they actually use interest free a lot in their promotion. Why is that the case is one of the reason is probably because of that Association, the mental association between interest and credit card. And also, you know, the psychological pain because, in sense credit card payment now has kind of like a bad name in a sense that, you know, people will spend more people will spend more and therefore, won't be able to be paid a credit card, and therefore, this interest as compound interest, it's a bad financial decision. So what they're trying to do in an advertising space is trying to dissociate themselves from the word interest or those negative connotation of interest. And so they're actually offering consumers, particularly younger consumers, that this is interest free repayment, if you obviously pay on time, but they would never advertise themselves that way, simply because, you know, they just don't want people to think about or associate buy now pay later with interests. So it is actually quite clever way to actually promote and advertise that product.


Blaize Pengilly  21:00

It's interesting that you mentioned that interest, I've just actually looked up on one of the websites. So this is specific for Afterpay. I'm not actually sure how the other other services do it. But this says, this is a late fee. So for each order below $40, a maximum of 110 dollar late fee may be applied per order. And for every order above $40, the total of the late fees that may be applied are capped at 25% of the original order value or $68, whichever is less. So if I I'm bad at math, right? So you guys will probably have to correct me. Yeah. But if you're paying a $10, late fee, on an order of say, $40. Is that, uh, that would equate to essentially being paying 25% interest. Is that right? And have I done the mathematics?


Billy Sung  21:49

Definitely that aligns with what my calculation is? I'm not sure. Dan, can you verify that?


Dan Jovevski  21:55

Yeah, I think I think it's right, right. 40 bucks, 10 bucks. 10? over 40 25%? It's sounds pretty right to be. So yeah, it can seem pretty high. And, you know, as a person getting whacked with a $10 fee for that purchase, you'd want to avoid that as much as you could. But believe me, maybe you can touch on another another topic here. Because one thing that we've certainly thought about, and and certainly out of the back of our minds is that we have this over inflated view of our futures, thinking that tomorrow will be much rosier and better. And we think that, with the future being better, that we can easily make these repayments of the future, can you talk to us about maybe some of the traps we fall into as humans, when we start thinking about consuming now, but having to wear the pain at a later point, but thing that I feel would be much better than maybe they actually end up being?


Billy Sung  22:46

Definitely so there's a lot of research in decision making and judgment, literature that shows that human decision making fundamentally fraud. So we talked about, we call these fundamental and cognitive biases or heuristics. So we actually, as humans, or at least human brain, make decision and identify patterns based on a, I guess, a default network of neurons, which, in a sense, are not very good at predicting the future. So to just give you an example, for instance, you know, if you provide any human with a set of numbers, those that actually, in a sense, forecasting the pattern, even though those are all random numbers, so as human, we are actually prone to making sure that, you know, we have to identify the pattern and actually forecast what's coming links, however, research and numerous research showing that it is very difficult for humans to actually predict the future. And as she said, most of the time, they actually positively frame the future in some ways, in the sense that, you know, there's a rosy a future in, in the near future, just like these buy now pay to scheme, if we, if it if a consumer actually engaged with these buy, now pay that scheme, they might or in a sense, there's a possibility that they are actually falling into the trap of actually going, maybe I could repay this, and, and I'm not spending more. And also what's also interesting here to note is again, that loss aversion kind of literature, loss aversion shows that when you weigh $50 in rewards and $50 of penalty, people will always try to avoid for the lowest penalty, because loss is much more valuable. Now, what's interesting is if you actually increase the temporal value of the loss, do you want to actually delay the loss for 10 days? Or do you want to delay the loss by 10 years? People will actually go out delay it by 10 years, obviously, right. And what's interesting here is they are actually predicting that when 10 years time losing $50. Let's not talk about the economics Title things, inflation and all this kind of thing. But that would actually feel less painful then actually incurring the loss of physical loss now, which in a sense is interesting 10 years probably is a long time, but they also feel the same if it's 10 days. So if I can delay my loss, or my pain or pain, or in a sense, just paying the money by paying $50, in 10 days, actually feel less painful, or actually feel less about loss. And it's actually quite interesting, because what we're seeing here is a behavior whereby we assume in trying to delay the pain, and actually thinking that we have much more resilience to pain or to these losses. In the near future. Even if we delay it by one day, 10 days or even 30 days, we are actually seeing that human is actually going, Whoa, it's the same loss. In a matter of fact, the same psychological pain are same, same levels of psychological pain is experienced, after 10 days or 30 days. But we actually feel that in the near future, when I feel that same level of pain on the same level of payment, my loss, and my pain is actually less, which is quite interesting, in a sense.


Blaize Pengilly  26:09

I think that's I think that's really fascinating. I think it goes to show, you know, we're pretty optimistic, which is nice that we're thinking, you know, in the future, we'll be able to afford all these payments. And in the future, the pain won't matter as much. So perhaps if we took this sort of optimism, about the pain of paying in our finances into other aspects of our life, we'd all be a little bit happier across the board, perhaps, perhaps this could be a good little psychological trick for us to tip for a happier society.


Billy Sung  26:38

That's right. And I think one, one interesting research over here, which I kind of mentioned earlier, is about that balance between satisfaction or gratification from consuming products, and the pain of pain. So if you think about this, it actually really makes more sense for you to pay cash. Because when you're consuming and using a product, that satisfaction, so let's say we have high level of satisfaction, but also I'm paying cash, and therefore I have high level of pain, you actually balance it out and go well, it's kind of like no five transaction, when you use credit card or buy now pay into the scheme, you're actually going, Okay, I'm going to have high level of reward and gratification now. And in 30 days, I need to actually pay it back or pay it in installments. So I'll fake feel the pain, or the high level of pain later on. But what we also see is that when you when time goes by satisfaction of that consumption drops to zero. And so maybe in 30 days, you're already doesn't have that gratification doesn't have that satisfaction on the product. But now you feel the pain, you have nothing to actually alleviate that. And here is where it goes back to what then is saying maybe then you're motivated to actually consume and not a product, so that you actually balance out that psychological pain of paying in 30 days or in small repayment in the next two or three months. And so, in some sense, if we're looking at satisfaction, in general, it's probably better off to actually just pay cash, and don't feel the pain in the future. And just balanced every reward and paid out in the sense. I can completely relate to this right now, Billy, because I feel like I've just had the opposite experience. Last week,


Blaize Pengilly  28:22

I did some online shopping. And I probably spent I mean, I definitely spent more than 82 and bought things that I didn't need but I was excited and in a spending spree Dan, don't tell me off for that. I've tried to be better with my money. But yeah, I did a bunch of online shopping, got super excited about it, did the checkout paid. And I was like, oh, probably didn't need to spend that much money. And then lo and behold, my parcel arrives yesterday, I open it not even that excited. I sort of you know, the excitement of the purchase was so thrilling for me and then unwrapping I unwrapped in about two minutes after I unwrap the gift, the all the clothes are sort of like oh, you know, probably didn't need to spend that money. I didn't actually need this, this isn't as good as I thought it would be. So I feel like I've had the reverse experience where I paid up front and then got the product whereas and just felt pain pretty much the whole way through it from the second I press checkout to the moment it arrived. I mean, I do have a great new wardrobe now a new outfit now. But yeah, I feel like it's the reverse because I paid up front and didn't use a service like buy now pay later so I can understand psychologically, how it's sort of how this is the services sort of flipped the way that we experience having have experiences on my shopping.


Billy Sung  29:36

I think that's a very interesting phenomenon that reminds me of some recent research that I've done and still not published yet. And I like to share with you guys um, it's a little bit off topic. However, I don't know whether you have actually heard of a topic called shopping cart abandonment course. Do tell. So shopping cart abandonment means not obviously not physical, but this occurred in digital marketing touchpoints I mean ecommerce platform, you might actually pick a few products and put it in your shopping cart or your electronic shopping cart. And what happened is you don't check out, you'll see, a lot of younger people notice the trick, right? If you if you keep the shopping guide, don't check out, you might get 10% off, or, you know, a promotion. And so actually, you know, my partner, and I do that all the time. But what's interesting here is we actually did a research on why people actually use shopping carts, or actually abandon their shopping cart, apart from actually knowing that there is a promotion. So let's take that away. Let's, let's say that there's no promotion, with the shopping cart abandonment, we call it a, you know, a rescue email for the shopping cart. But let's take that away. What we actually found in our research is that people actually feel pleasure when they actually clicked the product and put it into the shopping cart. And so simply by clicking and making the decision to go, yeah, I'm going to purchase it and putting in my shopping cart, but I'm not checking it out. I'm not checking at the end of my you know, session, we actually found that they actually experienced pleasure by simply clicking on buy, and putting it in the shopping cart, but not checking out. Which is fascinating, because when I first interviewed


Blaize Pengilly  31:15

I wish I knew this a week ago, money, this is exactly what happened, you get so excited putting it all in the cart, and then you bet you get deflated.


Billy Sung  31:26

I still remember the first time I interviewed this girl, I think in university, and I, you know, we had these interview question and it was qualitative research on we asked them, you know, why, why, why did you abandon your shopping cart, she said, well actually feel quite happy to actually put all these $5,000 $6,000 stress into the shopping cart, but not actually having to pay for them. And I was thinking, Oh, that might be you know, a special case, you know, this, this must be an anomaly in our in our data set. But what we actually found is that both gender, and that's it. And so both men and female, actually do the same thing towards different product category. But they actually experienced pleasure by simply clicking it and putting it into shopping.


Dan Jovevski  32:14

That's amazing, Billy. And for those geeks out there that have recently listened to the Google IO presentation, talking about Google's new feature releases it, I think Google might have preempted your your research, Billy, because what they created is every time you open up a new chrome tab in your browser, there's now an integration with Google Chrome, that tells you all your shopping carts that currently haven't been checked out with the providers. So it's going to remind you in a very regular basis, all those little ones and twos that are sitting on those websites that you're reconnecting to, on my Amazon, I'm just living my Amazon, I've got like three, the deceiver there, which I haven't purchase, I consider me a test subject as well, because I find the same thing I added to the cart, I think I really need it, maybe not gonna just leave it there forever and ever. Billy, this is a really interesting topic. We've talked a lot about maybe some of the issues with buying our pilot, which you know, the enumerate, and I think they've all covered in I think some of the behavioral science components are way the frontier and researches and you're certainly leading the pack with that, you know, focusing on maybe the positives, what are some of the things that are positive about pilot pilot or that that you've seen in your research?


Billy Sung  33:26

Definitely. So obviously, from even just economic and financial standpoint, simply using credit card and buy now pay to the scheme appropriately, and in a financial sound way will actually provide you with a bit of financial benefits. So for instance, if you're making a payment of $1,000, and you're paying later, obviously, that $1,000 in cash, you can actually stack it up in a, let's say, an offset account for a loan or home home loan, or a savings account that provides you with you know, currently, the interest rates are quite low, but you know, 0.5% interest rate per annum of saving is still okay, you know, 50 cents. At least that's inflating in the sense that, you know, that's increasing your savings interest. But that is only when, obviously, when you pay it on time, when you don't actually occur late fee, you don't accrue interest on incur interest on so forth. And so, on financial side of things, if you are talking to, let's say, you know, financial savvy consumers, that's some of the reason that they will provide you with why they use your credit card payment. And I guess by now payment scheme, they actually see that, you know, these type of financial products, and if they use it appropriately, they're not going to overspend, they're not going to have the ability to actually buy out in cash. However, they know that why while they're using the credit card, which has need either like a 30 day or 60 day payment cycle, or the by now painted the scheme where you can actually pay it in interest free segments is actually quite an attractive way to actually manage your finances because You can actually save that cash up, put it into an offset account. And some of the home loan nowadays is around 1.8%, or even sometimes 3.5% per annum. And so if you're, you know, stacking away $10,000 into these offset account, and you know, having three more months on interest free under $10,000. And maybe it's an offsetting free 3.5% of the interest, financial savvy consumer will actually be able to make those assumptions or those those calculation and actually cite those as he motivation of why they using buy now pay later scheme. But obviously, we have talked about all the psychological mechanism that goes underneath it as well. That's probably why they're driving with, we're seeing a huge demand of buying up at the scheme. But I guess the other benefit of using vinyl painted scheme is really the flexibility. So for younger people, or people with less purchasing power, what you're trying what you're giving them, what you're providing them is that financial flexibility that they might not have to full cash to pay it in full. But now they can actually pay it in five different installments. And that's also another well cited reason, when we look at buying up at that research, oh, even credit card usage, whereby people with lower purchasing power will say that, you know, I would wouldn't be able to afford this, if I don't have that credit card off, I don't have that buy now pay later scheme. And so again, that financial flexibility that that the financial products actually afford, really provides a great benefit for people with I guess, lower, I guess, disposable income.


Blaize Pengilly  36:40

I think that is one of the really awesome parts of using services like buy now pay later, is that it makes things accessible to people that you're right, don't have purchasing power. If I recall that, maybe four years ago now was the first and only time I ever used a buy now pay later service because I have to be really strict with myself. Otherwise, I buy lots of things I don't need. And the reason I used it was because you could buy flights with a buy now pay later scheme. And in that instance, I didn't have enough money saved up, I didn't have an emergency fund or any sinking funds. But I needed this flight. And flights are one of those things that if you if I was to wait to save up to buy the flight, the flight would have doubled in price. Whereas using a service like buy now pay later, I was able to buy the process of reasonable fly at reasonable price. And then I was able to pay it off in installments that I would have really struggled to save up all at once. So I found it really beneficial in that sense. And yeah, I think the I think it's really wonderful how they services can be used to make things accessible. Billy, I would love to know, I asked Dan, his prediction about what the buy now pay later sort of future would look like in five years time. What's your prediction? If you were to make a guess? What, what five years time what it would look like for these people using these services? Do you think there'll be predominant like General, how do you think it'll go?


Billy Sung  38:05

I think if we if I if I can look through my crystal ball, which I genuinely don't have an as a researcher. As I said, humans are very bad at predicting features. But if you forced me to look into my crystal ball and actually predict I think in five years time, by no pain is the scheme will still be quite the there's still a demand of final painted the scheme. So we'll see a growing and emerging demand I'll find out at the scheme. And that also kind of is what I guess the big financial Institute's are looking at. So for instance, you know, Commonwealth Bank, and all the big fours are actually coming out with their own buy now pay later scheme, because they probably the late adopter in the financial product and going oh my god, we missed out a very, very lucrative opportunity. And so I think if we're looking in five years, I think by now this game is here to stay, there will be going demand and emerging demand. However, if you ask me whether in 10 years, what will happen is that this by now pay this game will become an old financial product. If you think about this by now Pilatus scheme is pretty much a fan's financial product, in comparison to credit card and credit card isn't, is kind of like an advanced version of loans. And loans is an advanced version of something else that, you know, it's just a financial product that evolves. And so maybe what we'll see in 10 years time, or even, maybe a little bit closer, is that final payment scheme might actually start to evolve again, and we might have different added benefits or and also added, I guess, tricks and limitation in a sense to trick your brain to feel, you know, not the pain and more than reward immediately so on and so forth. So I think in five years time, still the growing demand in 10 years time, I would actually expect that by now pellets and scheme will fold into a different financial part. Whereby in might afford different benefits.


Dan Jovevski  40:04

Fantastic, Billy, that's really it's a really good way to think about the future and the utility, right? The credit card is a was a product that was invented from a charge card of the late 60s introduced in the 70s. And popularized with huge amounts of consumer interests in the ad. So when we look back, I mean, that products, you know, coming across almost 50 years old now. So it's interesting to see how bipolar evolves as we as we progress into the future. As we wrap up today, Billy, what have your top three tips for consumers using binary products? What are the things that come to mind in terms of how we can start thinking about our own psychology, and use use those products to potentially get ahead?


Billy Sung  40:46

The first one is, always ask yourself, whether you need that product or not. If you have to have bought it with cash, would you have made a different decision. So ask yourself that, because if you ask yourself that, you might actually in essence, simulate that psychological pain. And, and you might decide not to buy that product, because you probably don't need it. And it's only because it's immediate gratification that you use buy now pay later scheme that that is actually driving you to purchase. The second tip is pretty much similar to the first However, this time around is more so to make sure that the buy now painted scheme, or at least the repayment or the interest free seconds that we are we paying, actually bus work out as your budget. So obviously, you guys on the board podcast has been talking about a lot about budgeting, and so on and so forth. And I really do encourage anyone to actually have a spending budget, and instead of actually forecasting it in our mental, in our mind, we actually need to make sure that you know, the interest free segment does make sense so that we payment does make sense, you know, three months down the track four months down the track that actually afford us, you know, that can still afford us that financial flexibility, I guess the third tips is buy now pay to steam shop around. And there might be a lot of promotion for buying up at this game, I think in recent months, by now pay later scheme has been competing with each other quite fiercely and have different promotion, different discount. And also, I guess, there's a number of different other competitors coming into the buy now pay to see market. So there must be some other, you know, to shop around, I guess. Fabulous, thank


Dan Jovevski  42:36

you so much for that, Billy. And is there any books or anything that consumers can go to to learn more about this topic, because the more you talk about this, the more I kind of uncover that. It's like It's the final frontier, the more we understand ourselves as humans and how we operate, the more likely we are to then optimize our financial futures, to the things we really want to achieve in life is there any books that come to mind believe that people can can refer to any other resources that people can learn more about the topics that you're interested in,


Billy Sung  43:05

I think not so much with buy now pay later. But one of the key books that I would always suggest someone to look at the book is called Thinking Fast and Slow. I'm not sure if you guys have already featured this book, it's a very famous book, it actually talks about, you know, decision making, basically. So suggesting that there is a system one and system two, whereby, you know, one system is a cognitive slow processing system. And the other one is very emotional, hedonic driven, very fast processing. And it actually talks a lot about how we actually make payments or make purchases, because if we look at buy now pay later, the immediate gratification is processed by this fast and hedonic system, whereas the pain or the cognitive processing might actually be more slower and deliberate, so on and so forth. So what we what we are saying, you know, what I'm have been saying for the free tricks of three tips, it's all actually changing from a fast hedonic processing system to a slow, deliberate system to go, do we do I really need that product? Do I? Is it within my budget? And do I need to shop around to, you know, deliberately process what is the best deal and the best method of payment, and so Thinking Fast and Slow? You know, it's, it's actually written by a Nobel Prize winner. So I definitely will suggest and recommend that book.


Blaize Pengilly  44:28

I will add that one to the book list. Billy, thank you so much for joining us today. That's all we have time for on the podcast. I am. I'm astounded thank you so much for sharing all your knowledge on all the buy now pay later services and why we are so addicted to them and how they can be beneficial and how you know things to be aware of when using these services. Billy, if our listeners want to find out more about you or any of your research, where should they go?


Billy Sung  44:54

I think the best way is actually to go to Curtin University's website and I have a proof out there, and all my publication and research over there.


Blaize Pengilly  45:03

Well, thank you so much for joining us Associate Professor Billy sun from cutting University. I will Chuck a link to that in our show notes. So if you're curious and would like to know more about Billy, all the research he does, take a look there. Thanks again for joining us, Billy. It was a pleasure to have you.


Dan Jovevski  45:17

Thanks, Billy. Thank you. Thanks for tuning in to another installment of We Talk Cents. We'll be back again next week.


Blaize Pengilly  45:27

Don't forget to download the WeMoney app using the code word podcast to make a budget of your very own and get on top of your spending.


Dan Jovevski  45:34

Please, if you've got any questions 80 pieces of feedback for Blaize and I please reach out on Instagram at a handle @getwemoney.


Blaize Pengilly  45:42

It also if you like the podcast, it would be so awesome if you could send this episode or an episode that resonates with you to a friend or family member that you think may enjoy it. Also, liking and subscribing or reviewing on Apple podcasts is a great way to show your support for the pod and so other people can find us too. Thanks so much for tuning in. We will catch you next week.


Dan Jovevski  46:02



Blaize Pengilly  46:03



The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs or financial situation.


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