Renju Jose
SYDNEY (Reuters) – The Australian government on Wednesday introduced legislation that would require buy now, pay later (BNPL) firms to carry out credit checks on borrowers, seeking to regulate a fast-growing sector popular among young people like other consumer credit products.
BNPL companies typically offer interest-free, short-term loans on the spot with a minimum credit check that spread payments over weeks or months and are primarily used by cash-strapped people who borrow, sometimes more than they can afford.
Until now, the sector has avoided rules applicable to credit card providers because BNPL firms make most of their revenue from merchant fees rather than interest payments.
Under the proposed new laws, BNPL providers will be required to hold an Australian credit licence, putting them under the supervision of the corporate regulator, the Australian Securities and Investments Commission.
“If it looks and acts like a loan, then it should be regulated as such,” Financial Services Minister Stephen Jones said in a statement.
The legislation would create a new category of “low-cost loans” to reflect the lower risk and cost of BNPL compared to other regulated forms of credit, he said.
BNPL business has surged amid an online shopping frenzy fueled by COVID-19 stimulus payments and ultra-low interest rates, but concerns about the payments are growing as Australia grapples with persistent inflation.
According to fintech companies, the majority of BNPL users are Gen Z consumers, or people between the ages of 18 and 25.
In Australia, where there are about a dozen registered BNPL providers, there were about 7 million active BNPL accounts with an average transaction value of A$136, according to Treasury data released last year.
BNPL Zip Co co-founder Peter Gray welcomed the government’s announcement and said the legislation would be consistent with the company’s existing practices.
Afterpay, which is owned by Jack Dorsey’s Block Inc, did not immediately respond to a request for comment.
($1 = 1.5029 Australian dollars)