The buy-now, pay-later (BNPL) sector in Australia is all grown up and it’s time to regulate it as such, according to Commonwealth Bank of Australia chief executive Matt Comyn.
Speaking at a House Standing Committee on Economics last week, Comyn suggested that this sector has become too big to avoid regulation, and that its high time Australian players in the space should be subject to the comprehensive credit reporting regime.
The legislation would require them to report users’ total amount of debt, allowing banks to better understand their risk profiles.
Comyn reportedly acknowledged the work and innovation that has gone into building tech-enabled businesses such as market leader Afterpay, and said avoiding regulation thus far is “quite a feat”.
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However, while the government “does and should” lean towards facilitating and encouraging innovation, “the line around innovation in this area is skewed to a complete absence and lack of regulation”, he argued.
According to Comyn, consumers who use BNPL services have higher rates of arrears on credit facilities. However, without those services providers contributing to comprehensive credit reporting, the actual figures are unclear.
He argued BNPL providers are offering credit products, but “rely on an exclusion that was drafted many years before the category actually existed”.
Now, the market has grown to such an extent that that exemption no longer makes sense, arguing the legislative framework in this space should be “comprehensively reviewed”.
“I don’t think it’s unreasonable given the size of the market, the scale of the individual players — in one instance being an ASX 20 company — to make an investment in understanding their customers’ circumstances and financial position,” he said.
“They are beyond the point where the legislation framework that applies to that sector needs to be comprehensively reviewed.”
For its part, Afterpay declined to comment on the specific issue of regulation.
However, a spokesperson pointed to research from Alphabeta conducted in 2020, which found Afterpay users actually have lower personal liabilities than they did in 2017, and lower liabilities than both the general population and a like-for-like matched group of people.
Afterpay customers pay “significantly lower fees” than users of other financial products, the spokesperson said.
To surcharge or not to surcharge?
Comyn also took aim at controversial ‘no-surcharge’ rules imposed by some BNPL players in Australia, which prevent merchants using the services from passing on the costs involved to their customers.
He reportedly called on the Reserve Bank of Australia to disallow providers from putting such rules in their merchant contracts, noting that businesses are incurring costs of between 3% and 6% on BNPL sales.
In December last year, RBA governor Dr Philip Lowe said that was “unlikely”, at least for the time being.
Having a no-surcharge rule in place promotes innovation and the development of new payments technologies, he said at the time.
At some point, the costs of a no-surcharge rule will outweigh the innovation benefits, Lowe explained. But operators in Australia “have not yet reached that point”.
Just last month, CBA announced it is launching its own BNPL offering, linked directly to customers’ bank accounts.
That service will come with no additional costs to businesses, beyond its the bank’s standard merchant fees.
CBA also has a 5.5% stake in European BNPL provider Klarna and 50% ownership of its Australia and New Zealand business.
Klarna’s country head for Australia Fran Ereira has also previously said she was “surprised” at the high costs retailers are facing to offer BNPL payments.
“This is a particular burden on a sector that is so critical to our economic recovery,” she said.