Australia hits buy-now-pay-later sector with consumer credit law (updated)

Humm

22/05/2023 04:53

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      BNPL providers must carry out background checks before
lending
    

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      Must notify customers when credit limits increase
    

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      Zip COO: Change would mean "business as usual"
    

  
 (Adds comments from Afterpay, Zip and analysts, shares)
    By Byron Kaye and Renju Jose
       SYDNEY, May 22 (Reuters) - Australia said it would
regulate buy-now-pay-later services as a consumer credit product
under new laws, forcing BNPL providers to carry out background
checks before lending in what would be one of the world's
toughest regimes for the startup sector.
    The move would put companies like Afterpay, owned by Jack
Dorsey's Block Inc  SQ.N , and Zip Co  Z1P.AX  under the watch
of the Australian Securities and Investments Commission (ASIC),
and Australia behind only Britain among countries that have
sought to regulate BNPL as a standard credit product.
    BNPL companies typically offer on-the-spot interest-free
short-term loans with minimal credit checks that spread payments
over weeks or months and are largely used by cash-strapped
people taking debt, sometimes more than they can afford.
    The absence of interest charges has so far exempted BNPL
providers from consumer credit regulation and the sector has
seen its business surge amid an online shopping frenzy spurred
by COVID-19 stimulus payments and ultra-low interest rates.
    But concerns about repayment have been rising as Australia
battles high inflation, which now sits at near 30-year highs,
with Australia's centre-left Labor government saying BNPL must
be considered credit since it has the same impact on borrowers.
    "BNPL looks like credit, it acts like credit, it carries the
risks of credit," Financial Services Minister Stephen Jones said
in a speech in Sydney on Monday. 
    "Our plan prevents lending to those who cannot afford it,
without stopping safe, prudent BNPL use."
    Home to about a dozen listed BNPL providers, Australia had
about 7 million active BNPL accounts that resulted in A$16
billion ($11 billion) of transactions in 2021-22, up 37%, data
showed.
    Australians spent A$63.8 billion shopping online in 2022,
with 26% of Australians saying they used BNPL to pay for
purchases, retail industry figures show.
    BNPL firms make most of their money charging a percentage of
sales revenue to merchants, in exchange for directing shoppers
to them. They charge borrowers late fees, but say they encourage
on-time repayment with the promise of higher credit limits.
    BNPL firms say they closely monitor borrower activity but
the new Australian law would require them to follow "responsible
lending" obligations that include running credit checks before
lending, notifying customers when credit limits increase and
following dispute resolution processes that are bound in law. 
    The government will unveil the draft legislation for
consultation later this year and the bill will be introduced
into parliament by the end of this year.
    
    'STRONG FIRST STEP'
    An Afterpay spokesperson said the change was a "strong first
step in the development of a fit-for-purpose buy-now-pay-later
regulatory framework".
    Zip Chief Operating Officer Peter Gray said the change would
mean "business as usual" since the company already complied with
Australian credit law for some products.
    A spokesperson for ASIC, the regulator which had advocated
for the toughest possible regulation of BNPL, was not
immediately available for comment.
    The Australian Finance Industry Association, which had hoped
its BNPL code of conduct would form the basis of
self-regulation, said it would "continue to work collaboratively
with the government on the details of future regulation". 
    Shares of Australian-listed BNPL providers were mixed by
mid-session as investors digested the regulatory development
that was largely expected. Local-listed shares of Afterpay owner
Block  SQ2.AX  were down 1.5% while shares of the biggest
standalone BNPL provider, Zip, fell 5%.
    "The buy now, pay later business model is still a structural
growth model," said Shaun Ler, a Morningstar analyst. 
    "You end up in a situation where everyone is suffering but
your competitors are suffering even more and the demand is still
there," Ler added.
    Andrew Grant, a finance lecturer at University of Sydney
Business School, said the regulations "should help to create
transparency for credit providers in the industry, without
harming the majority of users who have a great experience with
BNPL products".
 ($1 = 1.4743 Australian dollars)

 (Reporting by Renju Jose in Sydney; Editing by Lincoln Feast
and Himani Sarkar)
 ((renju.jose@thomsonreuters.com; +61 29171 7126; Reuters
Messaging: @renjujose))