Australia is preparing to regulate the BNPL sector

With the Buy Now, Pay Later (BNPL) craze taking over the world, the Australian government decided to prepare legislation that would introduce some new rules to the sector.

With the new set of rules, BNPL providers would be able to carry out basic credit checks on new customers, making it safer and easier to decide whether the customers match what they are looking for in their clients.

Interest in BNPL Blows Up In Australia

BNPL has been blowing up around the world, and Australia is no exception. The country recorded a major take-up of BNPL products from several major companies, including Klarna, Afterpay, and Zip.

Interest in their products and their usage soared over the last few years, with approximately 40% of Australians using them in the first half of this year. The nation’s government said that it recognized the demand surge, as well as the fact that BNPL has brought major competition to the credit markets.

However, it also noted that most of these products are not covered by the standing National Consumer Credit Act. In the interest of safety and security for both the providers and customers, the government decided to address the matter by amending the act. Its solution will allow providers to conduct a credit check of the customers, but it will also require them to hold a credit license, and comply with the existing laws surrounding such checks.

Furthermore, the legislation is also set to establish “low-cost credit” — a new category under the Act, which will reflect the lower risk and cost of BNPL compared to other regulated forms of credit.

The approach is quite different from what happened in the US, where the CFPB published an interpretive ruling, deciding that BNPL lenders should be treated like credit cards. This did not sit well with many in this sector, causing entities like Klarna to push back.

Consumers Can Only Benefit From BNPL With Strong Protections

In Australia, however, the situation is different. Stephen Jones, the Assistant Treasurer and Minister for Financial Services commented on the matter and said that the government wants Australians to enjoy the benefits of BNPL. However, they can only do so if they know that strong consumer protection is in place.

“If it looks and acts like credit, then it should be regulated as such,” he said, adding that the changes are balanced and proportionate and that they maintain the consumer benefit afforded by BNPL products.

Meanwhile, ip ANZ CEO Peter Gray commented by 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.”