Government takes first step in BNPL crackdown

The federal Treasury has launched an inquiry into the buy now, pay later sector, which is likely to result in tighter regulation for BNPL services.

"These products deliver real benefits to the vast majority of these consumers," said Minister for Financial Services Stephen Jones. "But there is a regulatory gap that can leave some vulnerable groups in over their head."

This regulatory gap is that while BNPL is similar to credit products like credit cards and personal loans, it is not regulated under the National Consumer Credit Protection Act 2009 (the Credit Act).

As a result, BNPL products are not subject to responsible lending standards.

Treasury is seeking views on how to provide a regulatory foundation for the future growth of BNPL in Australia, with submissions due by December 23.

Three regulatory options are being considered:

Stronger industry self-regulation
Partly bringing BNPL into the Credit Act
Completely bringing BNPL into the Credit Act

The positives and negatives of BNPL

An accompanying Treasury report noted that BNPL offers several benefits to consumers and the economy, such as:

Generating increased sales for businesses
Providing cheaper and more convenient access to credit than many other competing products
Increasing competitive pressure on traditional forms of credit

However, the paper also said "the rapid growth of the BNPL industry may be contributing to poor consumer outcomes", with some critics accusing the industry of:

Inappropriate lending practices – which are contributing to financial stress
Poor product disclosure practices – which mean consumers do not have sufficient information to make informed choices about BNPL products
Unethical advertising – such as encouraging the use of BNPL for essentials such as groceries or utilities

BNPL use surging in Australia

Here are five key facts about BNPL from the Treasury report:

Australia has about 20 BNPL providers
The number of active BNPL customer accounts grew from about 5 million to 7 million last financial year
Consumers spent about $16 billion through BNPL in the 2021-22 financial year, which was equivalent to about 2% of Australian card purchases
BNPL is most popular among consumers aged below 35
More than half of people aged 18-34 were using BNPL as of March 2022