In May 2023 I reported that government had finally taken steps to initiate long awaited and much needed regulation of the Buy Now Pay Later (BNPL) industry. This was a couple of months after BNPL operator Latitude added a major data breach to its list of execrable endeavours such as offering no question finance to vulnerable people that can’t afford to pay for things they don’t need.
I also naively narrated that although there was no start date set for the changes, they were expected to be in place by the end of 2023. Here we are in October 2024 and guess what?
You might recall that the BNPL industry is unregulated because its participants do not charge interest – instead charging exorbitant fees for late or missed payments. The announced changes are for “limited” regulation rather than full regulation which the industry no doubt sees as a win.
Legislation was finally introduced into Parliament in June 2024 (its belatedness blamed on a lack of legislative drafters) and is now stuck in the Senate. Meanwhile vulnerable Australians continue to be tempted to buy items they can ill afford as they struggle with cost of living pressures, and then scramble to meet monthly instalments.
The proposed changes are obviously of little concern to BNPL operators with banks and mobile wallet providers now getting in on the act. It’s hard to curb cynicism with major player Zip publicly welcoming the new laws, and Zip’s ten-fold share price increase since the changes were announced tells a story.
The concept of deferring payment for consumer goods has only been around since 1974 when the Bankcard was introduced to Australia. Before that it was near on impossible to spend more than what you earned. A recent survey found that on average people now spend $1,309 more than they can afford in a bid to keep up with the Joneses.
Excess spending has never been easier. And it will only get worse as artificial intelligence powers data harvesting and digital surveillance to further target users. Add to this that BNPL providers market heavily on social media to exploit the ever-increasing on-line FOMO that fosters device addiction and impulsive acquisitions.
Over two in five Australians have recently used a BNPL service. 20% of these users incurred late fees compared to just 5% four years ago. Surveys show that 59% of Gen Z and Y consider BNPL schemes to be better than other options. BNPL payments in Australia are expected to grow by 14.8% annually to reach $25 billion this year and $40 billion by 2029. Hopefully we’ll see some legislation passed before then to finally regulate this industry.
This is general information that is not personal financial, investment or taxation advice, and does not take into account your personal circumstances. Do not act based on this information without first obtaining the advice of a suitably qualified professional.
by MARK DOUGLAS
FCPA
Managing Partner of Francis A Jones
www.faj.com.au