new-payment

New ways to pay

The way we pay is changing. Here’s what you need to know about new payment methods.

Using cash from your wallet is no longer the go-to method for paying for purchases for many Australian consumers. Instead of reaching for cash or even card, it’s becoming more commonplace to reach for your phone, sign up to a payment platform or take advantage of interest-free finance.

These new ways to pay are incredibly convenient and pretty enticing. But what are the traps that you should be aware of?

Way to Pay 1: Interest-free payments

shopping interest freeInterest-free payment providers such as Afterpay, Openpay and zipMoney let you make purchases online or in-store that you then pay back interest-free.

Each of these providers has partnered with many different retailers so that all you have to do is simply select “interest-free payments” at the checkout. If you’re approved, you repay the cost of the purchase in ongoing instalments with no interest charged.

Benefits

  • Take advantage of sales when you don’t have the cash
  • Make larger purchases and repay interest-free
  • An alternative to credit cards and personal loans

Traps

  • Payments are automatic and if you don’t have the available funds you’ll be charged late fees
  • Encourages you to spend money that you don’t have

Way to Pay 2: In-store finance

paying for shoppingRetailers are also getting into the credit game by either partnering with credit providers or offering their own form of finance.

This includes retailers promoting credit offers in-store, such as with Best & Less and Capfin. This particular loan offer featured an interest-free period. Other examples include CreditLine from Latitude Finance that is available at a range of retailers.

Benefits

  • Convenient application as you can often apply in-store
  • Lets you take advantage of interest-free promotions
  • You can make large purchases interest-free depending on the retailer

Traps

  • Because it’s offered in-store, applicants may not equate it with applying for a credit product
  • Advertisement and promotion of these credit options can be predatory
  • Encourages you to spend money that you don’t have

Way to Pay 3: Ongoing credit

paying with line of creditInterest-free finance options and in-store finance has expanded to include ongoing lines of credit. This includes products such as Zip Money, which gives you a line of credit that can be used at a range of retailers.

Other lenders such as Wallet Wizard offer loans that are ongoing lines of credit as opposed to finance with a set repayment term. Large department stores such as Myer and David Jones also offer branded credit cards that can be applied for in-store.

Benefits

  • Convenient application online or in-store
  • Reduces the need for multiple applications as credit becomes available once you’ve made repayments
  • Can offer reward points

Traps

  • Ongoing credit can encourage unnecessary spending
  • Credit lines can keep you in debt longer
  • Those applying in-store may not equate it with applying for a credit product

Way to Pay 4: Tap and Go and mobile payments

contactless paymentTapping your debit card, credit card or phone is increasingly becoming the preferred payment method for smaller purchases.
If your card has contactless technology you can “tap and go” for purchases less than $100. If you have Apple Pay or Samsung Pay you can also pay using your phone if you’re with certain banks and card providers.

Benefits

  • Very convenient way to pay
  • A good option if you’ve forgotten your wallet

Traps

  • Contactless payments can bring your account into the negative if you have insufficient funds
  • Small payments can quickly add up without you noticing

Way to Pay 5: Overdrafts

overdrawing your accountOverdrafts offer you a way to extend the money available in your account. Most banks will allow you to overdraw your transaction account but will charge you a fee, usually around $10.

If you want to avoid the fee, you can set up an overdraft so that you’ll be able to overdraw up to a certain limit, usually ranging from between $100 to $20,000, and avoid the overdraft charge.

Benefits

  • Offers a convenient source of emergency funds that are tied to your transaction account
  • Can stop you from accidentally overdrawing your account

Traps

  • Can send you into a spiral of debt each month, with any new money coming into your account being used to pay back the money you owe
  • Is not a reliable source of funds for shopping and should only be used for emergencies when you need it

Way to Pay 6: Payday loan ATMs and debit cards

payday debit cardsShort term and payday lenders are extending their credit product offerings to debit cards and yes, even ATM machines.

Payday loan debit cards let lenders send approved loans instantly to existing customers, while the ATM machines let customers apply for a loan quickly in certain locations.

Benefits

  • Allows borrowers to conveniently receive and access funds

Traps

  • Encourages repeat borrowing
  • Instantly receiving loan funds can result in borrowers using high-cost payday loans to fund unnecessary or impulse purchases
  • In-store ATMs can offer more convenience than needed for payday loans

Are they worth the convenience?

Innovations in finance are always welcome, but while some of these innovations are helpful and beneficial to consumers, others can encourage unnecessary spending and can lead the borrower into debt. Make sure you consider your financial situation when deciding whether one of these new ways to pay is right for you.

Pictures: Shutterstock

Elizabeth Barry

Elizabeth is an editor for finder.com.au specialising in personal finance and fintech. She enjoys reading PDSs so you don’t have to.

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