New rules in Australia will regulate buy-now-pay-later (BNPL) services as consumer credit products. This would compel BNPL providers like Afterpay and Zip Co to perform background checks before lending, making Australia one of the toughest startup countries.
BNPL firms provide interest-free short-term loans with minimal credit checks, letting clients pay over weeks or months. These services are popular among financially strapped people who take on too much debt. The COVID-19 epidemic boosted internet purchasing, which exempted BNPL providers from consumer credit control.
Inflation in Australia has raised repayment difficulties. Since it affects borrowers similarly, the Labor administration considers BNPL credit. The Australian Securities and Investments Commission (ASIC) will regulate BNPL enterprises, making Australia second only to Britain in regulating BNPL as a normal credit product.
Australia to control Buy Now, Pay Later
Australia has over a dozen listed BNPL providers with 7 million active accounts and $11 billion in transactions in 2021-22, a 37% increase over 2020-2021. 26% of Australians used BNPL to pay for products in 2022, adding to the $63.8 billion spent online.
BNPLs charge businesses a percentage of sales and borrowers late fees. Higher credit limits reward on-time payments. These corporations claim to closely monitor borrower behaviour, but new Australian legislation will require “responsible lending,” including credit checks, credit limit hikes, and dispute resolution processes.
These regulations will be drafted later this year and introduced in Parliament by year’s end. Afterpay called the changes a “strong first step” toward an appropriate regulatory framework, while Zip’s CEO said the changes won’t affect the company’s operations because it already complies with Australian credit laws for some products.
Despite sector problems, economists think the industry’s structural development model will persist due to robust demand for BNPL services. The laws are intended to increase credit provider openness while safeguarding the majority of BNPL consumers who have had excellent experiences.