The Australian Securities and Investments Commission (ASIC) has released its long-awaited report into the burgeoning buy-now-pay-later (BNPL) industry.
And, while some users are suffering financial stress — even skipping meals or paying household bills late — in order to make their BNPL payments, the regulator falls short of imposing any new rules on the high-growth sector.
The latest review follows a 2018 report into the industry. However, the sector has grown considerably since then.
The report took into account data from six BNPL providers — Afterpay, Zip, Payright, Openpay, Brighte and Humm — plus a survey of 1,655 consumers who have used BNPL within the past six months.
ASIC found the number of BNPL transactions in the 2018-19 financial year was almost double those recorded in the previous 12 months, increasing from 16.8 million to 32 million.
And, that was before the COVID-19 pandemic led to an increase in online sales, and a boom in the use of BNPL platforms too.
In the same 12 months, late payment fees also increased by 38%. Some $43 million was generated through these fees during the 2018-19 financial year.
Just over a fifth (21%) of users surveyed said they had missed payments in the past 12 months. Of those users, 47% were aged between 18 and 29.
Further, in the 2018-19 financial year, of all the transactions that incurred late fees, 45% incurred multiple missed payment fees.
That equates to some 1.1 million transactions that incurred multiple missed payment fees.
However, data for 2020 shows a decrease in the number of transactions that incur a missed payment fee.
In January 2020, 10.08% of all BNPL transactions incurred a late fee.
Although COVID-19 saw a boom in this sector, the percentage of late payments decreased steadily. Just 2.4% of transactions incurred a late fee in June 2020.
Skipped meals and missed bills
The consumer research also unearthed some concerning consequences of misusing BNPL products.
One in five people surveyed said they had cut back or gone without essentials, including meals, in order to make their payments on time.
Of those, 49% were aged between 18 and 29, and 50% had missed payments in the past.
Many of these users were also regulars, with 27% saying they had made at least six BNPL purchases in the past six months.
Further, 15% of consumers said they had taken out an additional loan in order to make their BNPL payments on time.
Again, 50% of those were aged between 18 and 29, 68% had missed a payment in the past, and 31% were regular BNPL users.
These issues were also more prevalent among people who use multiple BNPL products.
For example, among those who have used three or more providers in the past 12 months, 25% said they had cut back on essentials in order to make repayments, and 20% said they had taken out an additional loan.
And, 20% of all consumers said they had paid other bills late in order to make BNPL payments on time. Of those, 44% missed household bills, 32% missed credit card payments and 22% missed home mortgage payments.
“Buy now pay later arrangements are clearly popular as a payment method. While working for the majority of users, some consumers are suffering harm,” ASIC’s statement on the report said.
To regulate or not to regulate?
In a statement yesterday, ASX-listed Afterpay, which represents some 73% of all BNPL transactions, addressed some of the concerns outlined in the ASIC report.
The fintech said its own research of 144,000 Afterpay customers found “no causal link” between using the product and spending on other essentials.
“For customers who find themselves in trouble, Afterpay offers a generous and accessible hardship program,” the statement said.
“Afterpay has never enforced a debt nor does it sell to debt collection agencies.”
However, this plays into the conversation around how BNPL products should be regulated, and whether they’re good for the consumer or not.
In the report, ASIC also noted there are regulatory changes coming, with design and distribution rules coming into effect in October 2021.
BNPL providers are not regulated under the National Consumer Credit Act, but they do fall under the jurisdiction of the Australian Securities and Investments Commission Act.
The Australian Finance Industry Association, and a group of BNPL providers, is also working on a code of conduct for the BNPL industry, which is expected to be in operation by January next year.
ASIC’s report said industry self-regulation has a “significant role”, and noted there is broad industry support and commitment to ensuring good outcomes for consumers.