As BNPL sector booms, calls for regulation grow louder

As they do not charge interest, BNPLs claim they are not providing credit. However, from a consumer point of view, the difference is only semantic.

For some people, the cost of late and account keeping fees can be just as expensive as a credit card.

A 2020 report by the Australian Securities and Investment Commission (ASIC) found that one-in-five people had missed payments on their BNPL debt. It also found that of those who missed payments, more than half were using multiple BNPL providers.

Missed payment fee revenue for all BNPL providers covered in the review totalled $43 million in 2018-19, up 38 per cent on the previous financial year.

Transactions with BNPLs are growing at an exponential rate. The report found the number of BNPL transactions increased more than 90 per cent, from 16.8 million in the 2017-18 to more than 32 million in 2018-19. The size of the industry has grown significantly since then.

Afterpay’s earnings results, delivered last week, showed its underlying sales soared 106 per cent to $9.8 billion for the six months to December 31, compared to the same period a year earlier.

Zip Co says it will accelerate its international growth in the year ahead and continue looking for offshore expansion opportunities, after its revenue jumped 130 per cent to $160 million over the same period.

Under the new code , which covers eight BNPLs, there are some improvements for consumers. Providers are now required to be members of the Australian Financial Complaints Authority.

Customers will be able to make complaints against providers if disputes cannot be resolved. There are also limits on how much can be paid in late fees.

Assessment of customers’ ability to repay a debt is also now required – but only for purchases of of more than $2000 for new customers and $3000 for existing customers.

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However, the problem that consumers could be using multiple BNPL providers remains.

The industry association through which the code was developed says it goes “above and beyond the law in Australia.” However, that may not be much of a boast, as BNPL providers still conduct their business outside of legal consumer protections.

Erin Turner, director of campaigns and communications at consumer advocate Choice, says: “The buy now pay later sector is now selling debt for dental treatments, solar panels and other large purchases.

“It is credit in everything but name, so the consumer protection laws for credit should apply in full, not a weak industry code,” she says.

Choice is part of a coalition of consumer groups that is calling for regulation of the BNPL industry to better protect consumers and put all credit providers on a level playing field.