To regulate or not to regulate — that is the question hanging over the booming buy now, pay later (BNPL) industry. A Treasury discussion paper released in late November 2022 suggests that the regulation-free framework could be drawing to a close for the BNPL sector.
But why has the regulatory framework for BNPL platforms been so free of constraints for so long compared to other finance sectors? Read on to learn more.
Digital BNPL arrangements have been around for a relatively short time. From the start, there has been an absence of regulation simply because BNPL products are a type of credit that comes under the exemptions in the Credit Act.
Unlike many other credit providers, BNPL providers are not subject to the responsible lending standards specified in the Credit Act. Nor are they required to hold an Australian Credit Licence, meaning they are marketed as a great alternative for people concerned about credit hits when applying for financial services.
The lack of regulation in the BNPL industry is unintended and reflects the challenges of keeping up with emerging products in the finance industry.
According to the Treasury discussion paper, there were 7 million active BNPL accounts with transactions totalling $16 billion in the 2021-22 financial year. This was up by nearly 37 per cent since the previous financial year.
The question of whether or not BNPL needs to be regulated is a complex and debated topic. On one hand, advocates argue that BNPL can offer benefits such as increased access to credit, convenience, and flexibility for consumers. On the other hand, some critics have expressed concerns that BNPL could lead to increased consumer debt, financial instability, and potential harm to vulnerable populations.
While the exemptions in the Credit Act have been a key factor in the success of the BNPL sector, they were never created for that purpose. The concern is that the regulatory gaps could leave consumers without adequate protections.
The Treasury discussion paper flags an array of issues for BNPL consumers, including:
- Poor processes for handling complaints
- A lack of hardship assistance
- Overselling, scamming and financial abuse
- Disproportionate and excessive fees and charges compared to the size of the debt
- Poor product disclosure practices
- Unsolicited selling
- Inappropriate advertising practices
As outlined ina recent royal comission there is a need to regulate the BNPL sector to bring it into line with other credit products in the finance industry.
While BNPL focuses primarily on the customer, there are other financing solutions available for companies, entrepreneurs and institutions. As an example GRENKE offers leasing, which has the same payment to the supplier, and over time, funds are collected from the customer format.
However while BNPL and leasing are both financing options, but they operate differently. BNPL allows customers to purchase an item and defer payment to a later date, typically in installments. Leasing involves renting an item for a fixed period of time and making regular payments for its use. Unlike BNPL, leasing does not result in ownership of the item at the end of the lease term.
Overall, the question of regulation will likely continue to be an important topic as BNPL grows in popularity and usage. It is important for policymakers and industry leaders to consider both the potential benefits and risks of BNPL in making decisions about whether or not to regulate this type of financing.
At GRENKE, we provide reliable and well-regulated leasing solutions that enable small and medium businesses to get the equipment they need to create a better experience for their customers. To learn more about our customised financial services, get in touch today.
Ultimately, as with any financial decision, it's essential to research and make an informed choice that aligns with your goals and values and read the terms and conditions of any financial decision.