Afterpay to co-operate with US probe into BNPL scheme risks
Buy now, pay later provider Afterpay says it will co-operate with a US probe into risks associated with BNPL schemes, despite its share price tumbling.
Buy now, pay later provider Afterpay says it will co-operate with a US probe into risks associated with BNPL schemes, despite its share price tumbling by more than 7 per cent on Friday.
Afterpay and Zip are among five BNPL businesses facing increased scrutiny of their credit programs as part of a new inquiry by the US financial regulator.
The US Consumer Financial Protection Bureau has issued a series of orders to collect information on the risks and benefits of fast-growing BNPL loans to Afterpay, Zip, US financial businesses Affirm and PayPal and Sweden’s Klarna.
“The CFPB is concerned about accumulating debt, regulatory arbitrage, and data harvesting in a consumer credit market already quickly changing with technology,” the regulator said in a statement on its website.
CFPB director Rohit Chopra said: “Buy now, pay later is the new version of the old lay-away plan, but with modern, faster twists where the consumer gets the product immediately but gets the debt immediately too.
“We have ordered Affirm, Afterpay, Klarna, PayPal and Zip to submit information so that we can report to the public about industry practices and risks.”
Shares in Afterpay, which is close to finalising a $39bn merger with US-based Block, led by Twitter co-founder Jack Dorsey, closed down 7.6 per cent at $82.67. Zip’s shares slid 6.1 per cent to $4.18.
Locally, Josh Frydenberg this month flagged an overhaul of payments regulation to accommodate new systems including BNPL and digital wallets.
An Afterpay spokeswoman said the fintech welcomed efforts to ensure appropriate regulatory protections for consumers in the diverse BNPL industry.
“Afterpay provides consumers with better transparency, lower costs and better budgeting tools than traditional forms of credit and promotes responsible spending,” she said. “Afterpay also promotes and enables responsible credit use by pausing accounts from future purchases if a payment is late, capping late fees and not charging interest. These built-in safeguards mean that Afterpay customers are actually half as likely to be delinquent than credit card customers.”
BNPL credit is a type of deferred payment option that generally allows the consumer to split a purchase into smaller instalments, typically four or fewer, often with a down payment of 25 per cent due at checkout.
A September study by US personal finance company Credit Karma found 34 per cent of BNPL users had fallen behind on credit payments, with 72 per cent of late payers finding their credit score hit as a result.
BNPL’s use had spiked during the pandemic and throughout the US holiday shopping season, the CFPB said. “More and more Americans are using it, and the most recent Black Friday and Cyber Monday shopping weekend saw massive growth in BNPL,” the bureau said.
The CFPB expects to publish aggregated findings on insights learned from this inquiry.
“Today’s orders seek to illuminate the range of these consumer credit products and their underlying business practices,” it said. “As part of today’s inquiry, the bureau is working with its international partners in Australia, Sweden, Germany and the UK, specifically the Financial Conduct Authority.”
The bureau will also be co-ordinating with the rest of the Federal Reserve system, as well as its state partners.
ART turns cautious on private credit
The super fund has cooled on private credit as demand for the asset class soars, warning of lower lending standards and reduced returns as investors rush in.
NAB eyes scaled advice in private wealth arm
National Australia Bank is considering a scaled advice offering in its private wealth arm, as it chases a growth pipeline boosted by its move to link up its private and business bankers.