Would strict regulations stifle the BNPL sector?

Team Veye | 27-Nov-2022 BNPL sector

When it comes to BNPL, Australian consumers have been one of the early embracers of the buy now pay later (BNPL) payment method globally. The sector gained a lot of traction during pandemic, so much so, that many traditional financial services firms, including banks, moved into the BNPL space. Stocks like Afterpay and Zip Co zoomed fast.

With about 20 BNPL providers operating in Australia, the BNPL industry has grown fast, with the number of BNPL accounts having surged from five million to seven million active buy now pay later accounts in the 2021-22 financial year. The transactions accounting for $16 billion increased almost 37 per cent on the previous financial year.

The sector came to ASIC notice in 2020 when it found that 21 per cent of BNPL customers had missed a payment. And 20 per cent of people had cut back or gone without essentials such as meals because they'd overspent.

Since providers did not charge interest to the customers, the product they provided was not technically considered credit and thus exempt from laws designed to protect borrowers who use products such as credit cards and personal loans.

The BNPL boom in Australia also changed current because of higher interest rates. All along, low interest rates in recent years had allowed BNPL operators to borrow cheaply to fund the gap between paying merchants and getting paid by customers.

Moreover, Consumer groups had been arguing for buy now pay later providers to follow responsible credit laws. But a Senate inquiry into fin tech held two years ago under the previous government, had suggested to have a voluntary industry code instead of any regulation.  

The industry believes the current code was working and is against any strict regulations. It believes the cost of conducting comprehensive credit checks would be too prohibitive given low value of the transactions.

Financial Services Minister Stephen Jones has desired BNPL services to be treated like other credit products under Australian law. Looking to toughen regulation, he said that laws could be passed by this time next year

The government’s action, may come as a blessing in disguise. The BNPL companies, though booming in popularity, often struggled to become profitable. It could benefit the industry and customers alike by filtering scams, over credit and also help in increasing profitability to providers. In the medium to long term, the growth story of BNPL sector remains strong.


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