For Olivia*, the appeal of buy now, pay later (BNPL) is ease of mind.

The 19-year-old student, currently based in the ACT, says she uses the credit service once a month at most, and relies on it as a way to reduce her spending while purchasing what she needs.

“If I’m doing a big purchase, I usually try and break it up instead of seeing all the money come out of my bank account at once,” she tells ABC RN’s The Money.

Until recently BNPL has been very popular, particularly with young people. Some estimates suggest more than 60 per cent of BNPL’s users are aged between 18 and 34.

But there have long been questions around how safe BNPL is to use, and whether more needs to be done to protect the 7 million Australians using the largely unregulated service.

For example, BNPL late fees can reportedly equate to interest rates of up to 50 per cent. And, according to ASIC in late 2020, one in five BNPL customers were missing payments.

What’s most concerning is who is being drawn into this debt.

“People who are really under serious financial stress are taking out BNPL. And that’s the real concern,” Andrew Grant, a University of Sydney economist, says.

So what is the appeal of BNPL for young people, what are its problems and what is being done to keep them safe?

University of Newcastle sociologist Julia Cook has researched BNPL’s appeal for young people. She says one reason is the service’s “less threatening perception”.

“[Young people] viewed BNPL as fun, frivolous – the phrase that kept coming up was ‘a little bit cheeky’,” she says.

“And in contrast, they viewed credit cards, bank loans as serious, as ‘really scary’, as something that could ‘ruin your life’.”

Dr Cook points out how “frictionless” signing up to BNPL can be.

“[Frictionless] means that you don’t need to tell the service what you’re intending to use the BNPL for. You don’t need to disclose your aims. In many cases, the amount of compliance checking is quite low,” Dr Cook says.

“So you’re able to sign up and link to a card and start spending really quickly.”

Unlike credit cards or bank loans, these products ask for little information from its users when signing up.

In her research, Dr Cook found people under the age of 18 being able to sign up to BNPL, despite not being legally allowed to do so.

“It also leaves the door open for the situations of coercion where someone’s making an account on someone else’s behalf, when they probably wouldn’t want to be or shouldn’t be.”

This lack of compliance checking has also resulted in users with potential credit issues signing up for BNPL.

“How is it possible for a young woman on a Youth Allowance of $522 a fortnight to end up with $8,000 of BNPL debt?” Fiona Guthrie, chief executive of Financial Counselling Australia, asks.

Grant says his research has also found users with maxed out credit cards were signing up to BNPL.

Often it’s meant that when it came to choosing which debts to pay off first, the related fees for credit repayments weren’t a priority.

“What we did find is that [credit card repayments were] lowest on the consumers’ pecking order of ‘I want to pay this’,” he says.

A persistent criticism of BNPL is how small purchases can spiral into larger debts.

Dr Cook says this is of particular concern for young people who may not be across the required obligations of BNPL.

“[Young people] did not necessarily understand that if they missed payments on their BNPLs, beyond being charged a late payment fee, they could also be pursued for payment. And they didn’t necessarily understand that their account could eventually be referred to debt collectors,” she says.

Dr Cook says half of the young BNPL users surveyed “didn’t have a good sense of what to do if they got into trouble if they were unable to meet repayments”.

“If they were experiencing hardship, they didn’t have any sense of where to seek help, how to seek help, what that might look like, which we also found quite concerning.”

This can result in severe debt, which could drastically harm those in lower socio-economic groups.

“A couple of years ago, [ASIC] were seeing people were getting BNPL and then struggling to pay it off  … [they’d be] going without essentials, to say ‘I want to pay off my BNPL debt, I guess I can’t eat this week’.”

He says often this group of people were taking on BNPL loans and then relying on a financial loan to pay off that debt.

Guthrie says she’s concerned that BNPL products can create “debt spirals”, which force vulnerable users to rely on it for things like food and electricity.

“You might think it’s a small amount of debt, so you’d make one payment, then you’re going to make another one, and you might have got some more [BNPL] in between times. And so it snowballs.”

Regulations are coming. In November, Treasury released a paper that agreed control measures should be put in place.

“A lot of Australians are racking up unaffordable debts,” Financial Services Minister Stephen Jones said at the time.

“It seems to us that it makes sense to have some credit controls in place.”

The minister said he hoped legislation for regulation would pass by the end of 2023. One option being considered is self-regulation .

Experts were not convinced on the viability of that option. “The idea that we would allow an industry to self regulate when it’s providing a credit product, which can cause harm to a number of people is just ludicrous,” Guthrie says.

The other two options for regulation under consideration involve incorporating BNPL into the National Credit Act (NCA), the legislation designed to ensure credit and lending facilities engage in safe practice.

Some argue that a partial inclusion of BNPL into NCA is the smartest approach. The University of Sydney’s Andrew Grant describes this as the “Goldilocks” option.

“We have to think of how the regulation will affect the industry overall. And it’s a degree of proportionality … if I’m buying a $100 pair of shoes, do we need to do a full responsible lending and credit check?”

“Finding the right balance where the BNPL industry can still exist, without being overly regulated, is I think what most people would be thinking is about the happy medium.”

Not everyone agrees, and critics say this legislation should be focused on protecting vulnerable users.

“It’s a strange argument to say that we should allow a business to continue if it actually harms people,” Guthrie says.

“Whether businesses continue or not is not an issue that should be at the forefront of the government’s mind. It’s whether the products are provided safely, and the credit actually helps people rather than harms them.”

*Name has been changed to protect privacy