Big banks push for BNPL regulations

By Cameron Micallef

April 19 2021
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The success of consumer take-up and the ease of credit provided by the buy now, pay later sector have seen the major banks renew calls for tighter restrictions on their products, an inquiry heard.

During a House of Representatives economics hearing, which covered a range of topics including the buy now, pay later (BNPL) service, CEOs from Commonwealth Bank and ANZ called for new regulations on the financial sector.

Providers of BNPL financing, which allows customers to pay for purchases through interest-free instalments, are not required to conduct credit checks due to not charging interest on payments. Instead they collect late payment fees and rely on taking a percentage of merchant sales, with the sector essentially governing its own code of conduct.

BNPL popularity with Millennial and Gen Z customers especially has seen Afterpay’s market cap grow to $37 billion, while its closest competitor ZIP currently has a market cap of $5.17 billion.

With changing consumer demands seeing customers prefer to split payments, Commonwealth Bank said it will launch its own buy now, pay later (BNPL) service through its debit or credit card from mid-2021.

With 4 million Aussies predicted to be using the service, Commonwealth bank CEO Matt Comyn told federal MPs that it’s time for Australians to be properly protected, calling for the platforms to be obliged to run credit checks on their customers.

“They are exempt from the comprehensive credit reporting regime and the consumer data right. They are a credit product, they are considered a credit product. They actually rely on an exclusion that was drafted many years before the category actually existed,” he said.

The CEO pointed out that if the companies were regulated by the same comprehensive credit reporting that banks and other financial players fall under, the banks would be able to understand how much debt consumers have spent on BNPL services.

According to Mr Comyn, this would allow the banks to better understand their customers and lower the risks on other financial products including credit cards and mortgages.

“I don’t think it’s unreasonable given the size of the market, the scale of the individual players — in one instance being an ASX20 company — to make an investment in understanding their customers’ circumstances and financial position,” Mr Comyn said.

ANZ’s CEO, Shayne Elliott, shared similar sentiments about the BNPL sector, calling for the financial instruments to have the same oversights as the banks.

When asked if BNPL regulation was appropriate, Mr Elliott stated “I wasn’t aware there was any”.

While he conceded that BNPL firms were innovative in their approach to the market, taking share from the banks, he said it was time to regulate it like any other form of credit.

“I don’t think because of what label I put on something, that we should be treated differently by regulation. I look at it and think what they’re doing is extending credit, and I think they therefore should be subject to the same rules as everybody else,” he said.

“Fair enough, you’ve got to where you are with some regulatory arbitrage, and now it’s time to play with the rest of the market and do so under full regulation.”

Mr Elliott also opined the proportion of customers that struggle to manage their repayments was higher for BNPL than for bank credit cards, suggesting that is due to the banks doing their due diligence on their customers.

About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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