Australia moves to rein in buy-now-pay-later with credit check law

Zip Co

05/06/2024 04:18

By Renju Jose
       SYDNEY, June 5 (Reuters) - The Australian government on
Wednesday introduced legislation that would require
buy-now-pay-later (BNPL) firms to run credit checks on
borrowers, aiming to regulate the rapidly growing sector popular
among youth like other consumer credit products.
    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 on debt, sometimes more than they can afford. 
    Up to now, the sector has avoided rules that apply to credit
card providers as BNPL firms make most of their revenue through
merchant fees, rather than interest payments.
    Under the proposed new laws, BNPL providers must hold an
Australian credit licence, putting them under the watch of the
corporate regulator, the Australian Securities and Investments
Commission.
    "If it looks and acts like credit, then it should be
regulated as such," Minister for Financial Services Stephen
Jones said in a statement.
    The legislation would set up a new category of "low-cost
credit" to reflect the lower risk and cost of BNPL compared with
other regulated forms of credit, he said.
    BNPL business surged amid an online shopping frenzy spurred
by stimulus payments during COVID-19 and ultra-low interest
rates, but concerns about repayments have been rising as
Australia battles sticky inflation.
    Gen Z consumers, or those aged between 18 and 25, form the
majority of BNPL users, data from fintech firms shows.
    Home to about a dozen listed BNPL providers, Australia had
about 7 million active BNPL accounts with an average transaction
amount of A$136, according to treasury data released last year.
    BNPL firm Zip Co's  ZIP.AX  co-founder, Peter Gray, welcomed
the government's announcement and said the legislation would
align with the company's existing practices.
    Afterpay, owned by Jack Dorsey's Block Inc  SQ.N , did not
immediately respond to a request seeking comment.     
    
($1 = 1.5029 Australian dollars)
    

 (Reporting by Renju Jose in Sydney; Editing by Sonali Paul)
 ((renju.jose@thomsonreuters.com))