Instant pay applications are booming with more than 1.5 million Australians using the schemes but finance experts are urging “caution”.
Financial experts have urged “caution” over money lending applications as the programs boom in Australia.
Mobile phone applications and websites branded as pay on demand or early access to pay have emerged in the last 18 months with more than 1.5 million Australians using the schemes.
The applications are most popular with Gen Z and Millennials with one in five of the former using the service to get money fast.
Finder personal finance expert Kate Browne said the services aren’t all bad but using them can generate poor money habits.
“While pay-on-demand services like Beforepay are relatively new, they are essentially just short term loans and should be treated with the same caution,” she said.
“They can be useful for a short period of time, like if you’re faced with a large unexpected expense in the middle of the month, or if your income has fallen short.
“On the flip side, having regular access to your income before payday can lead to poor money habits, such as overspending and being unable to save,” Browne said.
Men are more likely to use the services than women, and the major players in the industry are InstaPay, MyPayNow and CommBank AdvancePay.
Ms Browne added, there are some significant differences between the brands.
“There are employer offered services, like InstaPay, which charge employers to let their employees access their pay ahead of time. These services are generally the cheapest option for employees.
“Then there are third party apps like Beforepay and MyPayNow, and bank-offered services like CommBank AdvancePay, which tend to be more costly.”
The Consumer Action Law Centre had been critical of the application. Its cynicism focused on the lack of regulation in the system and high-interest rates.
The interest rates can reach five per cent of the amount borrowed. This means you could be paying $25 for a $500 loan.
The Financial Rights Legal Centre policy officer Julia Davis told Nine Newspapersin July the interest rates charged by MyPayNow were “extraordinary”
“It is up there with payday loans,” she said. “These guys want to say they are not sharks but anyone would say a loan with a 200 per cent interest rate is outrageous, that is shark territory.”
“Anyone creating a company that falls right through the cracks of all our responsible lending laws is doing it on purpose, they are calling it innovation but they are avoiding regulation and just taking advantage of a loophole.“