Regulation changes give Openpay suitors pause for thought

The federal government is urging corporate regulator ASIC to regulate the BNPL industry, which has always sat out of the credit licensing regime.

Openpay receivers are understood to have made approaches to its larger competitors to buy the business after it collapsed at the start of the month.

It is understood offers were made to Afterpay and/or Zip Co to test their interest in taking on the assets from receiver McGrath Nicol. Assets include Openpay’s merchant relationships and funding lines as well as its IT system.

Openpay was yet to make a profit when it listed several years ago. More recently, it had pulled out of the UK and was trying to sell its US business as it scrambled to secure debt.

Taking on other businesses is likely to be far from the minds of other buy now, pay later providers, with proposed changes to the industry.

The federal government is urging corporate regulator ASIC to regulate the BNPL industry, which has always sat out of the credit licensing regime.

As part of a review into the sector, options being considered are maintaining the status quo, placing some credit provider obligations on the BNPL providers or placing all credit provider obligations on the groups.

Afterpay is advocating for strengthening the BNPL code plus the introduction of an affordability test or having limited BNPL regulation under the Credit Act, including licensing and to assess whether the product is suitable for the customer.

Zip is believed to be advocating for partial regulation given it already offers credit with interest payments to customers as part of its services.

BNPL providers have made huge windfalls in recent years in a low-interest-rate environment with no regulation but, with rising funding costs and looming regulation, that is no longer the case.

The government is wary about BNPL providers being able to charge fees for late payments that can be as high as the product they have bought.

A change in legislation could create a dilemma for Afterpay’s owner, Square, say some analysts where it would need to invest further to accommodate stringent law changes.

Afterpay says it currently conducts credit checks in the United States with its prodcut.

Should the regulation come into force, Australia would be leading the world with the news laws for BNPL providers.