Easter heralds a rush to the mall as shoppers use the long weekend to hit the sales hard.
Often its not their own money they’re spending, leading to a seasonal uptick in consumer debt, including credit card debt.
There’s a collective $16.2 billion of consumer debt on household “balance sheets”, according to the Reserve Bank, though the real amount is higher, as some people use revolving credit mortgages to fund their lifestyle.
But former endurance rower Shaun Quincey would like to turn back that tide of consumer debt by using digital technology to resurrect the old-fashioned “instalment plan”.
READ MORE: * The moose’s head, and the slow death of laybys * Laid back Christmas with laybys * Warning Christmas could increase ‘mind-blowing’ $3500 per capita consumer debt
Quincey rowed the Tasman solo in 2010, emulating his father Colin, who had done the same 33 years earlier.
The feat took Quincey junior 54 days, but he forecasts it will take far longer to get his newly launched Genoa Pay in enough stores to deem it a success.
So far Quincey has signed up 40 retailers for Genoa Pay’s buy now, pay by instalments scheme, but thinks he” hit his target of over 2000 in two years’ time.
Genoa Pay lets the likes of shops and dentists sell their goods and services to people without taking immediate payment, but also without forcing them to take on high interest consumer debt.
The customer pays the cost through 10 weekly instalments.
A Genoa Pay instalment plan costs the business between 4-7 per cent of price of the goods or services sold, and is a modern take on something businesses like dentists and vets have long done.
That is allow customers to pay by instalment, a tradition that goes right back to the earliest days of store keeping in New Zealand.
Retailers who sign up to Genoa Pay are not allowed to ramp up their prices for customers opting to use Genoa Pay for fear the instalment plans will be judged consumer credit contracts.
“If we charge the merchant 5 per cent, they can’t make their products 108 per cent. It still has to be the core cost of the products, or it becomes a consumer credit contract,” Quincey says.
Despite Genoa Pay’s lawyers helping stay on the right side of the consumer lending lase, Quincey expects consumer loan-making rivals to complain.
He’s braced for a friendly fact-finding call from the Commerce Commission.
But he says, if the Commerce Commission do think there’s a problem with Genoa Pay, there will be an awful lot of small businesses up and down the country allowing customers to pay by instalment which it will have to visit as well.
Consumers are sick of being shunted towards high-interest debt, Quincey believes.
“When a consumer is choosing between an organisation that offers payment plans and one that tells them to go and apply for a short term loan, 94 per cent of those consumers will choose a payment plan,” he says.
Aggressive expansion of the consumer lending industry has seen high-interest revolving credit facilities like Q Card and GEM Visa cards offered in store by retailers to enable them to sell to more people.
The most common ways to pay are:
CASH: No longer is cash king, but neither will it die. Figures from Payments NZ show cash is the chosen way to pay for around 30 per cent of retail purchases made by low-income folk, and around 10 per cent made by middle and high-income people. Cash is a store of value, but carrying it in large amounts can be risky, and inconvenient. Some use cash as a budgeting tool, some as a means of enjoying the illegal benefits of tax-free “grey” economy.
DEBIT CARDS: Eftpos and “scheme” debit cards (from Visa and Mastercard) are loved by people who want to only spend their own money, not incur debt, no matter how short-lived. Eftpos cards can’t be used online, which is why more costly scheme debit cards are on the rise. Many card-based debit transactions are now being made using mobile phones.
LAYBY: In sharp decline, layby is now available in fewer and fewer stores. Layby lets people ask a shop to set an item aside. They then make regular payments towards the cost. When they finish paying, they get to take it home. Retailers found it an inefficient system, and prefer people to buy using credit.
CREDIT CARD: High interest rates, often over 20 per cent, annual fees, and large borrowing limits make these a hazard for some people to carry around. People who pay them off at the end of each month, get to use other people’s money to make purchases.
OTHER REVOLVING CREDIT CARDS: These have gradually killed hire purchase. People can sign up for the likes of Q Card and GEM Visa in store. Unlike hire purchase, which end with the last payment, these are card-based revolving credit facilities, leaving temptation in a consumer’s pocket. There can also be lots of fees, and interest rates are high, once no, or low, interest periods end. Q Card’s “standard” rate is 25.25 per cent.
PERSONAL LOANS AND PAYDAY LOANS: Can now be applied for in minutes online. Effective interest rates vary from single digits to rates that boggle the mind for payday lenders. The establishment fees and ongoing fees can be nasty too.