New BNPL Legislation in Australia: What Can We Expect?

In recent years, Australia has seen a significant increase in the adoption of Buy Now, Pay Later products from companies like Afterpay, Klarna, and Zip. In fact, around 40% of Australians used this payment method in the first half of 2024. Due to such rapid growth, the local government started developing new legislation to regulate the actions of BNPL service providers.

In this guide, we will take a closer look at these regulations and explain what BNPL firms operating in Australia and their customers should prepare for in the near future.

Reasons Behind Regulatory Changes in Australia’s BNPL Sector

Such a lack of regulation has raised concerns from the local authorities, as it has the potential to expose users to unexpected fees, less transparency, and higher financial risks. As a result, the Australian government has decided to take steps to address the existing regulatory gap.

Notably, Stephen Jones MP, Assistant Treasurer and Minister for Financial Services, has emphasized the importance of introducing new regulatory standards. According to him, the government wants Australians to continue enjoying the benefits of BNPL, while knowing there are strong consumer protections in place.

What’s more, multiple BNPL industry leaders have expressed support for the proposed legislation. For instance, the CEO of Zip ANZ, Peter Gray, mentioned that the company has been a longstanding advocate for fit-for-purpose regulation that supports strong customer outcomes and welcomes the Federal Government’s introduction of these standards.

3 Key Legislative Adjustments Explained

In a nutshell, the Australian government’s proposed legislation for BNPL providers will introduce three major changes:

• Credit licenses. BNPL providers will need to hold a credit license. This change will bring them under the regulatory framework of the National Consumer Credit Act, ensuring that they adhere to the same standards and protections as other credit providers.
• Basic credit checks. Service providers will be required to carry out basic credit checks on new customers. Their goal is to ensure that clients’ creditworthiness is assessed before they can use BNPL services, aligning the offering more closely with traditional credit products.
• “Low-cost credit” category creation. The new legislation will establish a new category under the National Consumer Credit Act to classify BNPL products as “low-cost credit”. This will factor in the lower risk and costs associated with BNPL purchases compared to other forms of regulated credit while providing a tailored approach that doesn’t compromise the services’ convenience.

Yet, it’s crucial to note that while these changes were proposed in parliament on June 5, 2024, they will need to pass both houses before they become an official law.

What Do These Regulatory Changes Mean?

All in all, the Australian government’s proposed legislation to regulate BNPL providers marks a crucial step toward enhanced consumer protection in this payment niche. By requiring credit checks and introducing a low-cost credit category, this regulatory initiative is set to balance security with the continued benefits and accessibility of these payment services.

For consumers, this means enhanced security and payment service transparency. Providers, on the other hand, will need to adjust their operations, which may involve updating their customer assessment processes and ensuring compliance with responsible lending obligations.

While the implementation timeline for this initiative is yet to be announced, this regulatory approach is already forecast to serve as a model for other countries grappling with similar issues in the rapidly evolving BNPL sector.