BNPL sector under ASIC scrutiny over late fee revenue

17 November 2020
| By Laura Dew |
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Buy now, pay later providers have responded to a regulatory report from the Australian Securities and Investments Commission (ASIC) which warned of revenues being generated by users’ late fees. 

The report found there were 3.7 million buy now, pay later accounts in 2018/19 and transactions had increased by 90% since 2017. Missed payment fees revenues were $43 million in the 2018/19 financial year with the most being seen by Openpay.

ASIC said it was developing a code of conduct with the industry which would deliver good customer outcomes and address consumer harm.

“From our research we also found that some consumers who use buy now pay later arrangements are experiencing financial hardship, such as cutting back on or going without essentials (e.g. meals) or taking out additional loans, in order to make their buy now pay later payments on time,” it said.

“There is also a risk that consumers may be paying inflated prices for some goods and services when using a buy now pay later arrangement.”

It also suggested capping the amount of missed or late payment fees a consumer could be charged; and preventing consumers from making further purchases when they have missed a payment.

The buy now, pay later sector was hugely popular with investors with shares rising by triple figures since the start of the year. Afterpay, which represented 73% of the market, had seen shares risen by 247% since the start of the year to 13 November, 2020.

In statements to the Australian Securities Exchange (ASX), Peter Gray, co-founder of Zip, said only one in 100 Zip customers paid late (compared to a one in 10 average found in the ASIC report) which meant it had lower late fee revenue of just 1% compared to 20% for Afterpay.

‘Our industry is developing a code of practice which we believe will lift industry standards. Zip has been a key player in developing this code and ASIC’s report will inform the code’s further development.

“However, while we believe the code is a very good start, Zip will continue to implement its own higher standards, particularly around customer suitability.”

Anthony Eisen, co-founder of Afterpay, said the provider had the lowest transaction value of the providers at $147 and the shortest-dated payment terms of six to eight weeks.

“This is a result of Afterpay’s differentiated business model that is unlike traditional credit or other BNPL providers, with built-on consumer protections that ensure average transaction values remain the lowest, payments are strictly short-dated and customers cannot revolve in large or accumulating amounts of debt. Customers are immediately suspended from Afterpay if they miss a single instalment payment.”

He also stated there was no statistical relationship between merchant growth in Afterpay and price changes nor between spending on Afterpay and on essential goods.

Eisen added: “Afterpay looks forward to participating in the Government’s upcoming review of the regulatory architecture of the Australian payments system including whether the general policy and regulatory framework adequately accommodates new and innovative technology such as the BNPL sector”.

Share price of Afterpay and Zip versus ASX 200 since start of the year to 13 November 2020

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