The Australian Securities and Investments Commission (ASIC) wants to keep a closer eye on buy now, pay later services after identifying a five-fold increase in the number of customers using the services over the past three years in its first review of the fledgling industry, released on Thursday.
The corporate regulator wants to extend its intervention power to include buy now, pay later providers, so it could take appropriate action if a significant customer detriment is identified.
The commission found that the number of customers using such services increased five-fold between 2015 to 2018, from 400,000 to 2 million. There had been $1.9 million in transactions in June this year. Outstanding customer balances were $903 million as at June 30, 2018.
“The typical buy now, pay later consumer is young with 60 per cent of buy now pay later users aged between 18 to 34 years old,” ASIC commissioner Danielle Press said.
“We found that buy now pay later arrangements can cause some consumers to become financially over-committed and liable to paying late fees.”
One in six users had become overdrawn, delayed a bill payment or borrowed additional money to overcome payment obligations. ASIC attributed this to customers being able to buy more expensive items than usual through the payment services.
“The exponential growth in this industry, along with the risks we have identified, means this will remain an area of ongoing focus for ASIC,” Press said.
ASIC said in the report that eventually it might require buy now, pay later providers to comply with the National Credit Act, though it wants to first monitor the industry more closely to assess whether this would be beneficial.
In response to the report, Afterpay, which says it has over 2.8 million users, acknowledged that its product is not for everyone and that customer protections needs to be put in place.
The payments company said that having clear oversight from ASIC would increase public confidence in the product and ensure that its products are not used in an unintended way.
Openpay’s chief revenue officer Dion Appel said the business would willingly comply with any regulatory framework introduced.
“Openpay are constantly investing in algorithmic technology in order to identify and adjust the lend amount to match the profile of individual customers,” Appel said.
“We are continually balancing less intrusive processes with risk, as the market matures and technology advances.”
Zip similarly supported ASIC’s findings, saying further regulation would enhance trust and confidence.
“I think for us, we’ve understood where the regulatory direction was going from [its] inception,” Zip co-founder and chief operating officer Peter Gray recently told IR.
“ASIC was very clear on its focus on responsible lending, and those sorts of obligations, and making sure that customers were suitable for each of the products they were signing up for… we’re well placed for business as usual. It could, in fact, [become] a competitive advantage.”
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