New ways to pay
The way we pay is changing. Here is what you need to know about new payment methods.
Using cash from a wallet is no longer the go-to method to pay for purchases for many New Zealand consumers. Instead of reaching for cash or even a card, it is becoming more common 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. However, what are the traps you should be aware of?
Way to Pay 1: Interest-free payments
Interest-free payment providers such as Afterpay, Openpay and zipMoney let you make purchases online or in-store that you then pay back interest-free.
These providers has partnered with different retailers so all you have to do is simply select “interest-free payments” at the checkout. If you are approved, you repay the cost of the purchase in ongoing instalments with no interest charged.
- Able to take advantage of sales when you don’t have the cash
- Can make larger purchases and repay interest-free
- They are an alternative to credit cards and personal loans
- Payments are made automatically and if you don’t have the available funds you are charged late fees
- It encourages you to spend money that you don’t have
Way to Pay 2: In-store finance
Retailers are also getting into the credit game, either partnering with credit providers or offering their own finance, which can include retailers promoting credit offers in-store, for example Gem Visa is available at a number of retailers.
- 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
- Because the store offers the finance, some 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
Interest-free finance options and in-store finance has expanded to include continuous lines of credit. This includes products such as ZipMoney, 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 Farmers and The Warehouse also offer branded credit cards that can be applied for online.
- Convenient application online or in-store
- Reduces the need for multiple applications as credit becomes available once you’ve made repayments
- May offer reward points of discounts
- Ongoing credit can encourage unnecessary spending
- Credit lines can keep you in debt longer
- People applying for credit in-store may not equate it with a credit product
Way to Pay 4: Tap and Go and mobile payments
Tapping 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 $80. If you have Apple Pay or Samsung Pay, you can also pay using your phone if you’re with certain banks and card providers.
- A very convenient way to pay
- A good option if you’ve forgotten your wallet
- Contactless payments can take your account into the negative if you have insufficient funds available
- Small payments can quickly add up without you noticing
Way to Pay 5: Overdrafts
Overdrafts offer you a way to extend the money available in your account. Most banks allow you to overdraw your transaction account but charge you a fee, usually around $10.
If you want to avoid the fee, you can set up an overdraft so that you can overdraw up to a certain limit, usually ranging from between $100 to $20,000, and avoid the overdraft charge.
- Offers a convenient source of emergency funds connected to your transaction account
- Can stop you from accidentally overdrawing your account
- 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
Are they worth the convenience?
Innovations in finance are always welcome, but while some of these innovations are beneficial to consumers, others can encourage unnecessary spending and 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.