Afterpay, Zip escape buy-now-pay-later crackdown but stricter regulation is on the way


Afterpay chief executive Nick Molnar. Source: Supplied.

Afterpay and Zip Co have escaped the worst from a Senate probe into the buy-now-pay-later sector and will not be required to conduct onerous credit checks on customers.

Delivering a verdict on the industry in a final report released last Friday evening, the Standing Committee on Economics did not recommend expanding national consumer credit protections to encompass buy-now-pay-later providers.

Instead, it palmed off “what regulatory framework would be appropriate for the buy now pay later sector” for further discussion among government and corporate regulator ASIC.

The outcome is good news for Afterpay, which said in a market release on Monday it “does not expect any material impact” on its business.

Likewise for Zip Co, which welcomed the findings in a market release on Friday evening.

“Zip looks forward to continued engagement with government and ASIC on any new legislation,” the company said.

Retailers weigh in

Businesses using the platform SmartCompany spoke to offered mixed views on the outcome of the inquiry.

Nathan Huppatz, founder of, says the potential for new regulation is positive for the sector.

“We still see strong consumer demand for the payment option and this actually drives high sales. We would be concerned if the payment method became difficult to use at checkout,” Huppatz says.

“I think it can only be positive that some sort of improved regulation be implemented for the BNPL [buy-now-pay-later] sector.

“As the report suggests, self-regulation won’t ensure that all operators are running their business in the best interest of the consumer, especially given strong growth in the sector.

“Regulation will help ensure vulnerable consumers are better protected,” Huppatz adds.

Judith Treanor, founder of online retail website Temples and Markets, said she has “quite grave concerns” about the level of debt growing in Australia and over-buying more broadly caused by the accessibility of BNPL products.

If, as ASIC noted, over 40 per cent of users had incomes of under $40,000, and of this group, almost 40 per cent were either students or in part-time work, is it really responsible to facilitate the purchase of items that may not within the means of the consumer?” she asks.

Senate’s soft hand

While the committee stopped short of a crackdown as some in the market had feared, it did say the regulatory framework of the sector should “appropriately consider consumers’ personal financial situations”.

The committee also welcomed legislation currently before the House of Representatives that would extend ASIC’s product intervention powers to cover buy-now-pay-later providers, a move both Zip and Afterpay support.

There were 20 recommendations in total arising from the inquiry, which held three public hearings and received 69 public submissions.

Consumer advocates have pushed for buy-now-pay-later to be covered under the National Credit Act, claiming vulnerable Australians are falling prey to accessible online credit lines.

Paul Harrison, a senior lecturer at Deakin University and a witness who provided expert commentary during the inquiry, said he was disappointed the Senate had not thought about the issue in a more “sophisticated” manner.

“In reality, these types of products, even though they don’t look like credit products, are,” he tells SmartCompany.

Harrison says while Afterpay doesn’t charge interest, they still functionally provide credit because consumers are able to receive goods before paying for them.

“I’m disappointed they [the committee] haven’t thought in a more sophisticated way about the effect of this type of product,” he says.

ASIC figures published late last year found one-in-six-buy-now-pay-later users had either become overdrawn, delayed bill payments or borrowed additional money to meet their payments.

Zip and Afterpay have very different business models though, and ASIC examined six buy-now-pay-later providers in total, including Certegy Ezipay, Oxipay, BrightePay and Openpay.

The corporate regulator stopped short of advising the committee to bring BNPL under consumer credit protections, while the committee acknowledged there’s a regulatory gap.

“[BNPL] providers have no obligation to undertake credit checks or appropriate measures to ensure their product is appropriate for the consumer’s personal circumstances,” the committee said.

“The committee considers that this regulatory gap should be filled.”

The findings raise the prospect of a new legislative instrument to regulate BNPL products which considers financial circumstance, contains dispute resolution mechanisms, provides hardship provisions and ensures consumers are “properly informed” prior to entering agreements.

When and exactly how such regulation would come into being was not specified by the report.

Insider trading?

While the Senate committee released its report after the market closed on Friday evening, a pre-release circulated to Senators on Tuesday last week has raised eyebrows.

The corporate regulator is investigating a 7.38% slide in Afterpay shares on Wednesday morning and a 3.2% slide in Zip shares a few hours later.

The share activity has raised suspicion because there were no material market announcements prior to the falls.

ASIC commissioner Cathie Armour told estimates last week the regulator was concerned about the activity.

“The volatility at the particular time was of concern to us, so we will be following that up,” she said.

When asked about the investigation last week Afterpay did not address specific questions about its knowledge of any potential leak.

“Afterpay is not in the practice of commenting on its share price or on fluctuations in the market,” a spokesperson said.

Zip Co declined to comment when asked about the investigation.

In the hours before the release of its report on Friday, the committee published a media statement on the investigation.

It noted the “media speculation” about the share activity but said it had “no evidence” of a draft copy of the report being leaked.

“As such, there is no investigation being undertaken by the Senate into unauthorised disclosure of confidential material,” the release reads.

It did also not commit to co-operating with ASIC.

“The Committee would, of course, consider any request for assistance from the Australian Securities and Investments Commission if it is made.”

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