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Australia is set to introduce new legislation requiring buy now, pay later (BNPL) providers to conduct basic credit checks on new customers, as the popularity of BNPL services like Afterpay, Klarna, and Zip continues to surge.
According to a Finder survey, approximately 40% of Australians have used BNPL products in the first half of the year, highlighting the significant adoption of these services.
While acknowledging the competition BNPL has brought to credit markets, the government notes that most BNPL products are currently not covered by the National Consumer Credit Act.
To address this gap, the government plans to amend the act, making it mandatory for BNPL providers to obtain a credit license and adhere to existing regulations concerning credit checks.
However, the proposed legislation will also introduce a new category of ‘low-cost credit’ under the Act to reflect the lower risk and cost associated with BNPL compared to other forms of regulated credit.
This approach differs from the United States, where the Consumer Financial Protection Bureau (CFPB) recently categorized BNPL lenders similarly to credit cards, a move that faced opposition from some companies, including Klarna.
Stephen Jones MP, Assistant Treasurer and Minister for Financial Services, stated, “We want Australians to enjoy the benefits of BNPL, while knowing there are strong consumer protections in place. If it looks and acts like credit, then it should be regulated as such. Our changes are balanced and proportionate and maintain the consumer benefits afforded by BNPL products.”
Peter Gray, CEO of Zip ANZ, welcomed the announcement, saying, “Zip has been a longstanding advocate for fit-for-purpose regulation that supports strong customer outcomes. We welcome the Federal Government’s announcement and the introduction of these standards, which are aligned with Zip’s existing practices.”
The new regulations aim to ensure consumer protection while maintaining the accessibility and benefits of BNPL services for Australians.
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