The Australian Securities and Investments Commission’s latest review of the buy now pay later sector dispels any doubt about whether ASIC has regulatory power over the fast-growing consumer credit market. The regulator made clear that it can regulate BNPL and it pointed to a couple of matters that have raised concerns.
ASIC is worried about the high level of late payment fees some providers are charging and also the lack of clarity around merchant surcharging.
Buy now pay later providers are not regulated under the National Consumer Credit Protection Act but they are regulated under the ASIC Act. They are also subject to ASICs product intervention power and will be subject to design and distribution obligation obligations, which take effect next year.
According to the report, there were more than 6.1 million accounts registered at June 2019, with 3.7 million of them active, and 56,000 merchant agreements with providers. The number of active accounts grew 38 per cent in 2018/19.
BNPL services have been take up more readily by young people, with 47 per cent of users aged between 18 and 29.
The total number of transactions grew 75 per cent to 3.4 million in 2018/19 and by 43 per cent to 4.8 million in 2019/20.
The value of transactions grew 79 per cent to A$5.6 billion in 2018/19.
Outstanding account balance grew 53 per cent from $907 million at 30 June 2018 to $1.4 billion at 30 June 2019.
Total revenue of the six BNPL providers surveyed grew 50 per cent to $398 million in 2018/19.
Twenty-one per cent of buy now pay later users who were surveyed missed a payment in the past 12 months. In 2018/19 missed payment fees grew 38 per cent to $43 million.
Missed payment fees accounted for 20 per cent of Afterpay’s revenue in 2018/19 and 16 per cent of Openpay’s. The proportions were lower for the other providers.
Zip charges an account keeping fee in cases where the consumer makes only a minimum monthly payment, rather than the full scheduled payment. In 2018/19, 61 per cent of the company’s revenue came from account keeping fees.
Some consumers reported experiencing negative consequences beyond incurring late payment fees. Twenty per cent said they went without essential purchases at some point over the past year in order to make their BNPL payments, while 15 per cent took out an additional loan to cover their BNPL commitments.
In the review, ASIC has set out how it expects BNPL providers to operate under the design and distribution obligations, saying they will have to monitor and review the outcomes of their arrangements and consider whether changes are required.
“Our review highlights that while BNPL arrangements have been embraced as a way to make purchases more affordable, some consumers are missing payments, paying missed payment fees and struggling to meet their financial commitments,” the report said.
“If the BNPL provider’s data indicates that consumers are paying missed payment fees repeatedly, for example, or that these fees represent a significant proportion of the amount borrowed, the provider will need to consider why this is occurring