Melissa Jenkins
(Australian Associated Press)

January is a time when many people face up to a rude credit card bill shock, courtesy of the Christmas spending splurge.

But in 2018, the proliferation of buy now-pay later services means many Australian shoppers will have payments due to companies such as Afterpay as well.

Afterpay Touch, the nation’s largest buy now-pay later service, has grown rapidly since launching here two years ago.

With more than 1.1 million customers and over 8,600 participating merchants now using the service, Afterpay’s underlying annualised sales are on track to surpass $1.5 billion as more major brands get on board.

Afterpay pays the retailer for a purchase, and the customer pays fortnightly instalments to Afterpay, with the benefit of no interest payments or up-front fees for up to 56 days.

It’s lay-by for the instant gratification generation: shoppers get their purchase before they’ve paid in full.

Afterpay is the largest but not the only service of its kind in Australia, with Zip Pay, Ezypay and zipMoney among other buy now-pay later platforms in the market.

Deloitte retail industry analyst David White says buy now-pay later products work well in Australia’s market given the nation’s debt-to-GDP ratio is the second-highest in the world behind Switzerland.

“The ability to obtain credit instantly in a convenient manner appeals to the type of consumer that we get here in Australia,” Mr White said.

“We do typically have a culture of borrowing and historically, lay-by type of arrangements have done really well in Australia – much higher than in the UK or other parts of Europe and the US.”

About three quarters of online shopping carts in Australia are abandoned before consumers actually buy, according to figures from global behavioural marketing agency, SaleCycle.

Mr White says online retailers offering buy now-pay later platforms have better shopping cart conversion rates and a higher spend per customer because consumers have more access to credit.

For example, women’s fashion chain Cue reported a 10 per cent jump in conversation rates since introducing Afterpay in December, 2015.

And the average value of Afterpay transactions at Cue is more than one-fifth higher than the average online transaction value.

Afterpay is the fastest growing payment service offered by online retail giant The Iconic, which also reports higher order values for Afterpay customers.

In a move to appeal to customers craving flexible payment options, Commonwealth Bank will soon give its credit card holders the option of paying down purchases, or a portion of their balance, in fixed instalments at a discounted rated over a fixed period.

Mr White said the popularity of buy now-pay later services will likely drive more creativity and innovation from major banks.

“What these companies have done is found a bit of a niche in the market where perhaps the banks were a little slow to to respond to what was happening in some other overseas markets,” he said.