Australia has announced that a new law will regulate buy now, pay later (BNPL) in the future as loans to consumers, so in the future, BNPL providers will have to comply with the same rules as other similar businesses.
The move would put companies such as Afterpay, which is owned by Jack Dorsey’s Block, under the scrutiny of local securities regulators. with this
After Britain, Australia will be the second country to recognize that the BNPL is nothing more than a loan.
Companies that offer nominal interest-free, short-term, and small-scale loans offer their loans for a few weeks or a few months with minimal credit checks, which are often used by people who are short of money, often in excessive debt. They get their income from dealers and late fees, which can often be horrendous in practice. Hindenburg Research’s short attack on Block, for example, set Afterpay’s real interest rate at 289% per annum.
Because there is theoretically no interest expense — only late fees — BNPL companies have been able to evade the rules on consumer loans so far, so the sector has expanded incredibly quickly, which has also helped the rebound during the coronavirus pandemic and the proliferation of online shopping. However, as a result of high inflation, questions about repayment are growing, so the moderate left-wing Labor Party, which leads the country, decided that from now on the BNPL should also comply with the rules on consumer loans.
BNPL considers, acts and assumes the same credit risks
– said Stephen Jones, Minister Responsible for Financial Services, adding that the plan aims to prevent the use of BNPL among those who cannot afford it, while not impeding the safe use of the service.
There are approximately 7 million active BNPL user accounts in Australia, and they have completed transactions worth A$16 billion (approximately HUF 3,700 billion) in 2021-2022. Last year, people spent $63.8 billion on the internet in the country and
26 percent of the respondents indicated that they use BNPL services.
BNPL companies get the majority of their revenue from merchants, to whom they refer customers, but late fees also bring significant revenue. The companies claim to encourage on-time payments by promising to withdraw a higher amount. However, according to the new regulations, companies must also comply with obligations related to responsible lending, writes A. Reuters.
The Australian government has promised a later date for the bill, which may be brought to Parliament before the end of the year.
