Jones flags BNPL shake up to ‘level playing field’

The Financial Services Minister says buy now, pay later has shaken up the traditional credit card providers for the better and new regulation shouldn’t stifle competition.

Financial Services Minister Stephen Jones is of the view that regulation is on the way for the BNPL sector, with the first-half of 2023 shaping up as the time frame.

Financial Services Minister Stephen Jones says impending regulation of the buy now, pay later sector is intended to create a “level playing field” and not stifle competition among lenders.

The Australian last week revealed an issues paper canvassing the options for regulation is scheduled for release in October.

Treasury is undertaking a review of the sector to decide how to best bring it within credit regulation, including garnering feedback from the industry.

Mr Jones, who is also Assistant Treasurer, has previously flagged he wants BNPL services treated in a similar way to loan products which are covered by credit laws.

“There’s consultation going on with industry at the moment in the form of a consultation paper, of what should be included in there,” he said in an interview.

“Nobody’s going to be caught by surprise on any of this, I’ve been very upfront with industry about what my disposition is, but you’ll have your opportunity to put your case (and) there are genuinely issues that we need to be mindful of.

“I don’t want to stifle competition, I happen to think that buy now, pay later has given the traditional credit card providers a real shake up and I think that’s a healthy thing in the credit markets,” Mr Jones added.

“If I could use this rule of thumb I don’t want to still be talking about it at this time next year,” he said, suggesting the new regulation was likely to be firmed up in the first half of 2023. “We should ensure ultimately there is a level playing field. Let’s ensure that innovation occurs in a safe ecosystem.”

Mr Jones has previously signalled that while consumer credit regulation was inevitable for the BNPL sector, that didn’t mean the industry would be regulated in exactly the same way as other lending products, such as credit cards.

Banks and other lenders have hit out at sections of the buy now, pay later sector for not conducting credit checks on customers to assess their ability to repay. Consumer groups and advocates are also concerned about the propensity for younger cohorts of consumers to get into trouble repaying if they have multiple BNPL accounts.

Large players such as Afterpay have argued their instalment payment product is not credit given interest isn’t charged, and often market BNPL as a budgeting tool. Afterpay doesn’t conduct credit checks of customers while its main rival Australia, Zip, does undertake identification and credit assessments.

As a form of limited self regulation, the domestic industry has formalised a BNPL code of practice which came into effect in March 2021. Players bound by the code include Afterpay, Brighte, Humm, Klarna, Latitude, Openpay, Plenti and Zip.

The BNPL sector is being hit by a host of factors including a surge in funding costs, rising bad debts and greater competition from banks and other players.

Despite four straight monthly rate hikes by the Reserve Bank, retail spending by consumers has remained resilient. That bodes well for the instalments sector, which needs to keep turning over its loan book to earn fees from retailers and other merchants.

Other markets including the UK are imposing tighter regulation on BNPL players.

In June, the UK’s Treasury outlined plans to require buy now, pay later participants to carry out affordability checks on customers and to ensure advertisements are “fair, clear, and not misleading”.

Players offering the product will need to be approved by the Financial Conduct Authority, and borrowers will be able to complain to the Financial Ombudsman Service. A consultation on draft legislation is slated to be released toward the end of 2022, followed by secondary legislation by mid-2023. After that, the FCA will consult on its rules for the sector.