Aug 13, 6:03 PM
The End of the Free Money Illusion: Australia's Instalment Credit Reckoning
Stripped of instant approvals and squeezed by regulators, the fintech darlings of the zero-interest era are being forced to reinvent themselves as traditional lenders.
When a financial institution secures the naming rights to a major sports venue, it usually projects absolute market dominance. So when Afterpay wrested the title of a Sydney Olympic Park arena from Qudos Bank, observers might have assumed the fintech giant was conquering the Australian financial landscape. The newly minted Afterpay Arena will allow patrons to defer payments on everything from concert tickets to alcohol. Yet, beneath this corporate bravado, the sector is quietly suffocating.
The period of unbridled expansion for Buy Now Pay Later (BNPL) services has abruptly terminated. Throughout the late 2010s, Australian consumer spending via these platforms swelled by $3 billion annually. By 2025, according to the Reserve Bank of Australia, that growth rate had halved. Since 2022, at least eight operators have retreated from Australia, including National Australia Bank. Zip is currently winding down its New Zealand operations entirely. The local market is now largely carved up between Afterpay, with 4.5 million users, and a trailing pack comprising PayPal, Klarna, and Zip.
The fundamental appeal of BNPL was always its frictionless nature, a model dismantled by legislation introduced in 2025 that classified the products as formal credit. Forced to conduct credit checks and report new accounts, providers lost their primary advantage. The regulatory friction has been devastating, with Equifax reporting that new BNPL account applications plunged by 35% in the three months leading to June 2026. Deprived of instant approvals, consumers simply reverted to conventional lending. Tellingly, Australians spent twenty times more via credit cards last year than they did through instalment platforms.
Profitability remains elusive. Despite generating $625 million in merchant fees in 2025, Afterpay—owned by the American conglomerate Block—recorded a staggering $741 million pre-tax loss in Australia. It has never turned a domestic profit. To survive, operators are desperately expanding beyond discretionary retail. Afterpay has integrated with Uber and Amazon, aggressively pursuing transactions in petrol and groceries.
The economics of this expansion are precarious. BNPL platforms typically extract a 3% fee from merchants, vastly exceeding the 1% standard for credit cards. With the Reserve Bank moving to ban card surcharging, businesses will inevitably scrutinise these exorbitant costs. Unless merchants are convinced that instalment payments drive significantly higher sales, they will refuse to subsidise the service.
Faced with a stagnating user base, the remaining operators are abandoning the fee-free ethos that defined their rise. Zip now imposes monthly fees and interest on specific products. Afterpay introduced a premium subscription tier, charging users $9.99 monthly to pay in instalments wherever mobile payments are accepted. This subscription model saw revenue nearly double to $42.5 million in 2025. The disruptors that vowed to revolutionise consumer finance have simply reinvented the traditional credit card.
Written by Sandy van Dongen sandy.vandongen@alpineweekly.com
