The UK will regulate BNPL: Will Australia do the same?

The UK Treasury announced today it would be placing stricter regulations on buy now, pay later (BNPL) services, in order to "ensure people can continue to benefit from these products with the right protections".

According to the Treasury, lenders will be required to carry out affordability checks on customers to ensure they are treated fairly, particularly those who are vulnerable or struggling with repayments.

This is similar to how credit cards are regulated in Australia, where there have been calls for similar regulation of BNPL providers.

Economic Secretary to the UK Treasury John Glen said BNPL can be helpful for managing finances, but it’s important that consumers are protected as they become more popular. 

"By stepping in and regulating, we’re making sure people are treated fairly and only offered agreements they can afford – the same protections you’d expect with other loans," he said. 

The UK Treasury acknowledged BNPL's "clear benefits", but said there are several potential harms which can be mitigated through regulation. 

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The table below displays credit cards with some of the lowest interest rates on the market, disregarding any temporary promotional offers.

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We’ve announced plans to regulate interest-free buy-now-pay-later credit agreements, giving consumers greater protection:

✅ affordability checks
✅ fair treatment for customers facing difficulties
✅ access to the Financial Ombudsman

Read more: https://t.co/0qEeu7jwuV pic.twitter.com/jmfk9WbHe4

— HM Treasury (@hmtreasury) February 2, 2021

What they said: Afterpay, Openpay, Zip and more

Some of the world's leading BNPL platforms have expressed their support for continued cooperation with this legislation. 

Damian Kassabgi, EVP of public policy at Afterpay's UK subsidiary Clearpay, said it welcomed the government's recommendations, and looked forward to working to "build on the consumer protections we already provide to create the applicable regulation for the sector." 

“It has always been Clearpay's view that consumers will be best served by products designed with strong safeguards and appropriate industry regulation with oversight from the FCA," Mr Kassabgi said. 

Zip co-founder Peter Gray said the review was a “positive step” for the UK industry. 

"As a global business, Zip is comfortable operating in a regulated environment and has always had a strong focus on responsibility, affordability, fairness and financial wellbeing," Mr Gray said. 

One of the smaller BNPL competitors Openpay also weighed in. 

CEO and Managing Director Michael Eidel commented on the news that Openpay was "committed to ensuring a fair and transparent playing field for all".

"We embrace appropriate regulatory oversight in all markets and look forward to further engaging with legislators and the FCA to ensure that the regulation protects consumers and fosters innovation and consumer choice," Mr Eidel said. 

"Openpay is pleased to see recognition that BNPL can be a helpful way for consumers to manage their finances.”

Mr Eidel had previously told Savings.com.au more regulation wasn't necessarily the solution. 

"Openpay is a strong advocate for self-regulation to maintain responsible consumer protections while also encouraging innovation," he said. 

"We believe a broad-based, one-size-fits-all-approach to regulation could stifle innovation and growth, and therefore reduce the number of low or no cost options available to Australian consumers when they pay for goods and services.”

Will Australian BNPL receive similar treatment? 

Buy now, pay later has seen massive growth in Australia since it launched. 

Based on the latest figures, Afterpay has roughly 3.4 million active customers in Australia, while Zip and Humm have about 2.5 million each. 

Klarna recently reported 500,000 since launching just a year ago, while Openpay posted a 123% lift in customers to 461,000 over a single quarter. 

Recent analysis by the Australian Securities and Investments Commission (ASIC) found one in five consumers had missed buy now, pay later (BNPL) payments, and 20% of consumers surveyed by ASIC said they cut back on or went without essentials like meals in order to make BNPL payments on time. 

As these platforms grow, so too do the number of late payments: the number of late payments charged a fee grew 38% compared to the previous financial year, although several key providers reported smaller figures. 

Gerard Brody, CEO of Consumer Action, has been among those calling for more regulation of the sector in  Australia. 

"It’s alarming if people are prioritising buy now pay later debts over essentials, or paying off other interest-charging loans," Mr Brody said in November last year.

"The best way to address this and limit the harm is to apply responsible lending obligations and other credit laws to the buy now pay later sector.”

He reiterated this stance today on Twitter. 

Sensible move in the UK today—regulating 'buy now pay later' means that repayments must be affordable. Time to bring this to Australia @JoshFrydenberg @MichaelSukkarMP @StephenJonesMP @asicmedia https://t.co/92iwriUUDu

— Gerard Brody (@gerardbrody) February 2, 2021

Given that a Senate Inquiry last year effectively concluded that BNPL platforms can self-regulate, it isn't clear whether Australia will follow with similar moves.

Former Diners Club and Citi executive Grant Halverson said other regions are more likely to impose BNPL regulations. 

"The EU is also looking at BNPL, my sources tell me they will regulate, as will Canada. The USA will no doubt follow given political changes in Washington," he told Savings.com.au. 

"Yet after seven years Australia and New Zealand have no BNPL laws and no regulation, it’s a wild west of consumer lending."

As explained in this article, most BNPL platforms in Australia do perform some level of credit checks, but it is mostly up to their own discretion. 

Photo by Kai Pilger on Unsplash