Afterpay lifts credit limit while bracing for looming buy now, pay later laws

Afterpay is preparing for looming regulations that would require buy now, pay later operators to perform tighter credit checks on new customers, and is raising credit limits to $4000 for consumers who meet certain criteria.

From this month, Australian Afterpay customers who satisfy credit requirements will be able to request an increase in their credit limit from $3000 to $4000.

Despite cost-of-living pressures, Afterpay head of policy Michael Saadat said there was no notable increase in signs of financial stress.Credit: Attila Csaszar

Afterpay’s head of policy Michael Saadat said the move comes on the back of people continuing to shift away from credit cards towards buy now, pay later (BNPL) products, but it is also positioning the company well for regulatory changes being proposed by the federal government.

“What the government is proposing will mean that we will need to do credit checks on all of our new customers,” he said. “The fact that we’re building a process for customers who are going from [a credit limit of] $3000 to $4000 means we will be well-positioned to respond to that change.”

The move comes after the government last month opened consultation and released its draft legislation on BNPL products. The proposed laws are aimed at bringing BNPL regulations into line with other types of credit, including a requirement that BNPL providers hold an Australian credit license.

Afterpay’s credit check for those moving to the $4000 limit will involve looking at customers’ credit scores. “In terms of how we would use that information, it would be very similar to how a traditional lender would use it,” Saadat said.

Limits can be increased as customers demonstrate they can make higher repayments, to a maximum of $3000, after which the credit check would kick in.

“We would be very considered before we decided to go above $4000,” Saadat said. “At this point, there are no plans to go further.”

While some BNPL providers have raised concerns about the costs associated with their products needing to meet the same obligations as credit cards and home loans, Saadat said he was generally pleased with the direction the government was going in its design of a tailored regulatory framework for the industry.

Despite cost-of-living pressures, Saadat said there was no notable increase in signs of financial stress by its customers.

“More than 95 per cent of all instalments are being paid on time, and 98 per cent of all purchases are incurring no late fees,” he said. “The amount of losses from customers who are unable to pay us back has remained stable at about 1 per cent of total consumer receivables.”

However, the Bank for International Settlements in December warned the rapid global growth in BNPL services could create risks in the financial system, due to a possible build-up of loans that are more likely to go bad than credit cards or personal loans.

Saadat said there were no major shifts in the areas people were using Afterpay, but that it was more mainstream among young people.

“Overwhelmingly, people are still using it to pay for the kinds of things we expect them to be using it for,” he said. “The main categories include clothing, household items, beauty products and footwear. People under 40 are not using credit cards to the same extent that other generations did ... they’re now using Afterpay instead of credit cards.“

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