Buy Now, Pay Later (BNPL) services like Afterpay and Klarna will finally be subject to the same regulations as credit cards in Australia. From Tuesday, new laws will come into effect, putting consumer safety measures in place around the ever-popular market. So how will it impact you? We’ve got you covered.
What is Buy Now, Pay Later?
Fair question! BNPL is a payment method that allows people to buy things immediately and slowly pay them off over time. You might’ve seen this as a payment option after your latest online haul, offered by companies like Afterpay, Klarna, Zip, and StepPay. Spending limits typically start low, and increase over time with consistent on-time repayment.
According to the Australian Securities and Investments Commission (ASIC)’s MoneySmart website, these services are often advertised as ‘interest free’ or ‘zero per cent interest’. However, they can (and do) charge fees for things like missed instalments, account set-ups, or processing payments.
This easily-accessible line of credit has proven popular, with almost half of Aussies admitting in 2022 to using a BNPL. It’s most popular with millennials (22 per cent), but Gen Z (12 per cent), Gen X (13 per cent) and Baby Boomers (eight per cent) also using the services.
It’s not exactly good news, given roughly one third of people (34 per cent) admit to being late on repayments. And although its often targeted towards people making non-essential purchases (like travel, clothes or beauty), a 2023 survey from Financial Counselling Australia found a significant number of people were using BNPL for essential items.
Earlier this year, Doordash even announced it was partnering with BNPL provider Klarna over in the US, allowing users pay for their meal delivery in four interest-free instalments.
We’ll just let the memes speak for themselves.
What is changing now with Buy Now, Pay Later payments?
From Tuesday, BNPL products will be subject to stronger regulation under new laws passed last year.
BNPL providers will now need to hold a credit licence — the same kind required by credit card and personal loan providers — and they’ll need to follow responsible lending rules enforced by ASIC.
They will also need to join the Australian Financial Complaints Authority, AKA the dispute resolution scheme that looks into complaints about financial products and services. So if you face any problems with a BNPL provider and can’t resolve it directly, you’ll now have access to free and independent dispute resolution, similar to other financial services.
Moving forward, under their responsible lending obligations, BNPL providers might ask you more questions about your financial situation (including in relation to your income and expenses) to make sure those bills don’t keep stacking up, and you’re not going to be put under financial strain.
New customers may have to consent to a credit check when signing up, depending on your provider, while some existing customers might need one if they want to increase their spending limit. There will also be caps on the maximum permitted default fees you need to pay.
“Some BNPL providers will report additional information, such as repayments, on consumers’ credit reports,” said Australian Retail Credit Association (ARCA) chief executive officer Elsa Markula, per news.com.au.
“However, BNPL providers such as Afterpay will report credit checks only.”
Admittedly, the latest changes means some people may find it much harder to now qualify for a BNPL payment, especially if they’ve got multiple such accounts or other financial commitments. Or it could mean they start with lower spending limits than expected.
But, consumer advocates argue it’s vital to ensure Aussies aren’t slung with repayments they can’t really afford. ASIC commissioner Alan Kirkland also noted the reforms are “an important step” to improve protection for Australian consumers who use these products.
A Zip spokesperson told PEDESTRIAN.TV the company “welcomes the new Buy Now Pay Later legislation in Australia and the introduction of these standards, which are aligned with Zip’s existing practices”.
They noted Zip has held an Aussie credit license since inception, and with the new rules, its Zip Pay product will be regulated alongside its three already-regulated products: Zip Money, Zip Plus and Zip Personal Loan.
“In terms of the Australian BNPL reforms, Zip has been advocating for fit-for-purpose regulation for many years, and we have transparently been conducting ID, credit and affordability checks on our customers since inception,” they said.
“Zip looks forward to continuing to support our customers and stakeholders as they look for flexible alternatives to manage their finances.”
An Afterpay spokesperson told the ABC that its “commitment to simplicity and transparency remains unchanged” with the latest rules.
“The new BNPL regulations reflect what we’ve always known: we’re distinctly different from traditional forms of credit such as credit cards because we help customers avoid interest and revolving debt,” they said.
What young Aussies need to know
With increased credit reporting, it’s worth pointing out that your BNPL activity — and yup, this includes any missed payments — could have a great impact on your credit score. According to Markula, some consumers may be in for a harsh reality check, especially if they were hoping to apply for a mortgage or a loan.
“BNPL is now the third most used credit product in Australia, behind credit cards and home loans. But too few people understand how it affects their credit profile, especially young Australians,” she said, per news.com.au.
“Under the new rules, your BNPL behaviour could directly impact your credit score and your future ability to get a loan, a credit card, or even a mortgage.”
She urged consumers to check their credit score regularly, and stay on top of repayments to avoid a negative hit to their credit reports.
Importantly, the sweeping changes don’t need to be all doom and gloom when it comes to your credit score, she pointed out.
“Done right, BNPL usage can now be a tool for strengthening your credit profile, especially for younger or credit-invisible consumers looking to access more traditional forms of credit down the track,” she said.
PEDESTRIAN.TV has reached out to Afterpay, Klarna, and StepPay for comment.
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