Why BNPL will soon be regulated like loan products

The federal government will legislate to increase regulation for the buy-now-pay-later (BNPL) sector after a review found it was posing a growing danger to consumers.

Minister for Financial Services Stephen Jones said the legislation, which would be introduced to parliament later this year, would close the loophole that allows BNPL to avoid being regulated as a credit product – because, technically, it isn't one, given that consumers don't borrow money when using BNPL.

However, as Minister Jones said: “BNPL looks like credit, it acts like credit, it carries the risks of credit.”

Minister Jones said the rise of BNPL was posing “new and growing dangers to consumers”, and that those risks were “disproportionately affecting women, First Nations communities and people on low incomes”.

“We have heard that some people are opening multiple BNPL accounts, to access far more debt than they’d be able to get on a credit card or a payday loan,” he said.

“And we have also heard that some people may be weaponising BNPL products in abusive relationships – doing things like coercing their partners to take on BNPL debts or taking out BNPL debts in their partner’s name without their knowledge.”

How BNPL providers will be regulated

Under the government's new legislation, BNPL providers would be required to:

• Hold Australian Credit Licences.
• Comply with responsible lending obligations.
• Meet statutory dispute resolution and hardship requirements.
• Comply with statutory product disclosure and other information obligations.
• Abide by existing restrictions on unacceptable marketing.
• Meet a range of other minimum standards in relation to their conduct and products.

ASIC would also be given “strong enforcement powers”, according to Minister Jones.

The upside of BNPL

Minister Jones said while BNPL had a downside, it also provided a lot of benefits to both consumers and businesses.

“Studies from the Australian Financial Industry Association tell us that in 2022, BNPL created an additional $2.7 billion in new revenue for merchants, through new customer acquisition, increased basket sizes and increased customer satisfaction and retention,” he said.

“And, through its relatively low‑cost offering, BNPL has also provided a valuable source of competitive pressure on traditional credit products, such as credit cards or payday loans.”

As a result, Minister Jones said the new legislation would provide “a proportionate solution”.

“Our plan prevents lending to those who cannot afford it, without stopping safe, prudent BNPL use,” he said.

Government data on BNPL

• There are around 7 million active BNPL accounts in Australia.
• The average BNPL consumer uses it for 18.2 transactions per annum
• The average BNPL transaction amount is $136.