What you need to know about new BNPL regulations

In a lively Monday morning address at the Responsible Lending and Borrowing Conference, Financial Services Minister Stephen Jones revealed some exciting news: the federal government is set to put a regulatory leash on the Buy Now, Pay Later (BNPL) industry. 

And with over 6 million Australians using BNPL services, this will have a huge impact on everyday Australians. So, we’ve broken it down for you. Here’s what you need to know about the new Buy Now, Pay Later regulations update.

What is Buy Now Pay Later (BNPL)?

Buy Now, Pay Later (BNPL) is a payment option that allows consumers to make purchases and split the total cost into multiple smaller payments over time, without any interest or fees (if paid on time).

This could look like:

Let’s say you want to buy a new coffee machine for $1000, but you don’t exactly have the cash to splash. When you get to the check out (online or in store), you may be given the option to BNPL. Companies like Afterpay or ZipPay will pay the cost up front for you so you can buy your item, and then you pay the BNPL provider back with 4 payments of $250 over the next 4 fortnights. If you miss a payment, you can be charged late fees or interest on your overdue payments.

Why do people use Buy Now Pay Later products?

It’s not hard to see the appeal at the first glance – get the things you want now, then pay for them later. And “better” yet, they’re less regulated than a credit card, so you don’t need to go to a bank, wait weeks to hear back, and have some finance whiz looking at all your financial accounts. 

You just click a few buttons on your phone and bam! “Free” money, right? Wrong.

Many Australians are struggling with cost of living increases, but their need for goods and services are the same. BNPL is fast, easy, convenient money. Seems too good to be true?

That’s because it is. 

Here are some facts about BNPL products that will paint a pretty clear picture of the risks involved:

• Swag research shows that 31% of Australians use BNPL services. Among Australian workers and those looking for work, more than half (51%) have missed or been late on a financial payment in the last year, which often results in additional fees and charges. This research was conducted in conjunction with YouGov, and surveyed a selection of 1,500+ Australians who are either working or looking for work. 
• BNPL services can have an effective annual interest rate of over 100% (and up to as much as 276%) for late payments 
• Short-term debt is weighing heavy on the minds of 4.5 million Australians, with nearly 3 in 5 (57%) worried they may not be able to pay off all their short-term debt.
• 42% of BNPL users have experienced at least one of the Household Income and Labour Dynamics in Australia (HILDA) financial stress indicators. These indicators include inability to pay utility bills, mortgage repayments, rent, going without meals, inability to heat the home, or seeking help from friends, family, or welfare organisations.
• 23% of BNPL users experience one of these HILDA stress indicators. 19% experience two or more —that’s more than twice as many as credit card users at 8%.

 

So… let’s go back to the original question. Why do so many people turn to BNPL products? Not because it’s a dream come true —but because it’s a less regulated way for Australians with statistically less income to become trapped in a cycle of debt.

What is the new Buy Now Pay Later regulations update?

The big difference between BNPL products and services and other forms of credit is that BNPL products don’t charge you interest. And until now, that differentiator was enough to keep them out of the regulated credit umbrella. 

But not any more.

With proposed regulation of the BNPL industry under the Credit Act, BNPL services will be treated as credit products, which means providers will have to jump through some hoops. They’ll need to secure a credit licence, meet hardship requirements, and stick to minimum standards of conduct. 

This is big news for Aussie citizens because it means that BNPL products like Afterpay and ZipPay will likely be subject to more stringent regulation. This is a step in the right direction. It’s all part of the plan to support financial wellbeing and ensure that we can all shop with peace of mind.

Swag Tip: More on the Credit Act

The Australian Credit Act refers to the legislation that governs credit activities and regulates the provision of credit in Australia. More specifically, it typically refers to the National Consumer Credit Protection Act 2009 (NCCP Act) and the associated regulations.

It sets the stage for responsible lending practices and makes sure that credit providers follow the rules. From licensing requirements to disclosure obligations, it’s all about transparency and giving consumers the upper hand. This Act even has its own enforcer, the Australian Securities and Investments Commission (ASIC), keeping a watchful eye over the credit industry.

Why are these BNPL regulations being introduced?

Until now, BNPL products and services haven’t fallen under the Credit Act and therefore weren’t being regulated to the same standards as, say, a credit card or a loan.

When asked about the dangers of BNPL, Mr Jones said, “BNPL looks like credit, it acts like credit, it carries the risks of credit.”

Even though BNPL services are less regulated than traditional credit products, they actually work almost exactly the same from the government’s point of view. If you always make your payments on time, that’s great! But if you miss payments, not only will you incur fees, but it’s very likely that it will negatively impact your credit score.

 

Does this mean BNPL is safe?

While this news announces welcome regulation of the BNPL landscape, there’s still inherent risk in shoppers adopting these products. . 

You see, Australian consumers still face risks when using BNPL. The government was presented with three BNPL regulation options and went with option two (aka the middle road). This means that while BNPL providers will need to follow stricter regulations, there are still possibilities for irresponsible lending. You will not receive the same legal protection you would if you acquired regulated credit products through more legitimate channels like a bank or other financial institution.

What should consumers be aware of when using BNPL services?

Always be aware of the late fees and credit implications for biting off more than you can chew financially. 

BNPL products and services are credit products. If you wouldn’t feel confident having a credit card, it’s best you treat BNPL services the same way. Becoming stuck in the cycle of debt is something nobody wants, but experts have recognised that more and more Australians are falling into debt because of BNPL services.

Also, something else to note: BNPL services will now have access to customer credit data, in order to assess a consumer’s financial landscape and make a decision. However, BNPL providers are under no obligation to report their own consumer data.

That means providers do not have access to a customer’s history with other BNPL providers. As a result, consumers could still potentially maintain multiple services simultaneously, which is a known factor that can contribute to debt stress.

Will the regulations impact the availability of BNPL services?

Yes, the new proposed regulations would impact the availability – this is a good thing. The new regulations under the Credit Act include credit-check requirements. This means that, like other credit products, BNPL services must now have a stricter assessment process to ensure that a consumer does have the means to use the credit responsibly.

This means that when you apply for a BNPL loan, the process may take longer, and there is a higher possibility of rejection if you have a history of late or overdue loan or credit card repayments.

Want an ethical BNPL alternative?

InstaPay is an earned wage access product that allows you to access up to 50% of your earned wages before payday, up to $1000 per week, for a processing fee of 1.3% when withdrawing into a Swag Spend Account, and 1.5% for withdrawals into any other bank account. This helps you avoid BNPL providers and avoid incurring unnecessary debt. Since it’s your own money, there’s no credit, interest or hidden costs —and no long drawn out repayment processes. 

How would BNPL providers be affected by the new regulations?

Obviously, these are all some big potential changes for BNPL providers. 

The proposed requirements in full are:

• Possess valid Australian Credit Licences
• Adhere to Responsible Lending Obligations
• Fulfil statutory requirements for dispute resolution and hardship assistance
• Comply with regulations for product disclosure and other information obligations
• Follow restrictions on unacceptable marketing practices
• Meet various minimum standards for their conduct and the products they offer

There is also the fact that with all these changes, there will be much more eyes on BNPL providers. There will be an expectation from not only the government, but now the general public, that they will put their consumers’ financial wellbeing at utmost priority. 

Read more: Australian financial behaviours: A snapshot report

When will these BNPL regulation changes happen?

Mr Jones has advised that in the upcoming months, the Treasury will engage in close collaboration with the industry and consumer groups to make sure these legislative changes are as watertight as possible. 

They aim to release an exposure draft legislation for public consultation later this year, followed by the introduction of the final Bill into the Parliament by year-end.

Instapay: the ethical alternative to BNPL products

InstaPay is an Earned Wage Access product that was developed by Employment Hero as a solution to provide employees with instant access to their earned wages. It doesn’t involve any credit, or incur any late fees because it allows employees to access their own money that they’ve already earned, without waiting until the end of the pay cycle.

It’s perfect for managing those bills that pop up between pay cycles, handling unexpected emergencies, and even budgeting for special events like Christmas and birthdays. And it doesn’t put the user at financial risk because there are strict limits to how much they can access in advance, with no addition of interest or late charges. 

InstaPay is here to bridge the payday gap and let you enjoy financial freedom without any unnecessary wait or risk of incurring debt. To learn more about InstaPay, which can be found in the Swag app, click here. 

What’s next?

The upcoming regulations for BNPL services will bring big changes for millions of Australians. Under the new rules, BNPL providers will have to follow stricter requirements, like getting credit licences and being responsible lenders. 

But… while it’s a step in the right direction, it won’t solve all the risks. Remember to watch out for late fees, credit problems, and getting trapped in debt when using multiple BNPL services.

Disclaimer

The information in this article is current as at July 2023, and has been prepared by Employment Hero Pty Ltd (ABN 11 160 047 709) and its related bodies corporate (Employment Hero) for its Swag brand. The views expressed in this article are general information provided in good faith to assist individuals and businesses in the current market, and should not be relied on as professional advice. Some Information is based on data supplied by third parties and whilst such data is believed to be accurate, it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for which it is required. Employment Hero does not accept responsibility for any inaccuracy in such data and is not liable for any loss or damages arising directly or indirectly as a result of reliance on, use of or inability to use any information provided in this article. You should undertake your own research and seek professional advice before making any important decisions in reliance on the information in this article.