After growing concerns over the impact buy now, pay later services may have on consumers, Australia’s government has announced plans to regulate the sector and treat BNPL services as credit products.
The Australian Financial Services Minister, Stephen Jones, announced the new regulations during his speech at the Responsible Borrowing and Lending Summit, which took place in Sydney earlier this week.
According to the Fintech Times, “evidence suggests that vulnerable groups, including women, First Nations communities, and individuals with lower incomes, are disproportionately affected by certain risks within the industry.” The decision to treat BNPL services as credit products aims to address these concerns and create a level playing field for all credit providers.
Overall, this move signifies a major shift in Australia’s regulatory landscape. It will require BNPL providers to hold Australian Credit Licenses, comply with Responsible Lending Obligations, and meet statutory dispute resolution and hardship requirements. Government involvement also puts a much-needed spotlight on BNPL services—that despite their marketing flair, these services carry risks similar to traditional credit products.
The absence of regulations had allowed the BNPL industry to operate unchecked, leading to concerns about the exploitation of consumers and potential risks associated with uncontrolled debt accumulation. “Given the research documenting potentially harmful effects to consumers, it’s not surprising that regulators are stepping in,” said Ben Danner, Senior Analyst of Credit and Commercial at Javelin Strategy & Research.
Regulation of BNPL, along with new credit products can be controversial. Some may argue that regulating BNPL in the same way credit loans are regulated may stifle innovation and limit consumer choice. BNPL services often target younger consumers who prefer flexible payment options and may not qualify for traditional credit loans due to limited credit history.
Nevertheless, there are some specific ways regulation can ensure a level playing field. By subjecting BNPL services to regulations similar to those governing credit loans, consumers may have access to clearer terms and conditions. Furthermore, regulations can ensure proper risk assessments are being conducted.
