While progressively tightening regulation has thinned out the number of Buy Now Pay Later (BNPL) players in recent years, there are new sweeping changes that will be required for what’s left of the sector to contend with.
The last set of changes, which effectively established a new category of low-cost credit under the Credit Act means consumers [using BNPL] could face a harsh reality check when it comes to their credit rating.
As of today, all BNPL operators, including Afterpay, Zip and Humm, plus low-cost credit contracts for major purchases, including solar panels or dental work – will come under the same regulations as credit cards.
That means all BNPL operators are now required to ask new customers and those seeking higher credit limits for income and expense information.
The new regulation aims to assess whether a loan is suitable and at what level credit limits should be set.
Under these new ASIC provisions BNPL products - the third-most used credit product in the country - may be mandated to complete checks and enquiries about a consumer’s financial status.
To prevent financial strain, the data being collected will be based on income and outgoings.
In addition to undergoing mandatory credit checks - which could impact their credit scores - consumers may start to see missed or late repayments appearing on their credit reports.
CreditSmart data shows, while 20% of Australian consumers use a BNPL service, 33% have never checked their credit rating. “Some BNPL providers will report additional information, such as repayments, on consumers’ credit reports,” ARCA chief executive officer Elsa Markula said.
Markula reminds Australians that BNPL behaviour could now directly impact their credit score and your future ability to get a loan, a credit card, or even a mortgage. She urged consumers – especially that younger Australians who are the biggest consumer of BNPL - to be wary of changes that may catch them off-guard.
“Not all providers will report the same data at the same time, so check updates from your BNPL provider,” she said. It’s understood that BNPL providers like Afterpay will report credit checks only. Industry survivor, and LA-based Nick Molnar, who is now the sales lead at Block, has only good things to say about the new provisions.
“I believe it provides the legitimacy [that] the buy now, pay later market needs and the ability for us to scale well into the future,” said Molnar who founded Afterpay over 10 years ago.
While major chains like Coles and Woolworths, had not added Afterpay to their checkouts due to the lack of regulation, Molnar now sees potential for it to be a payment option anywhere a credit card is accepted.
“Some of the biggest industries in [Australia] have been holding out to offer Afterpay until a date that we are regulated,” he said. “We are now starting to scale into more everyday spend.”
