Australia to regulate buy now, pay later sector with credit laws

The Afterpay application download page arranged on a smartphone in Sydney, Australia, on Tuesday, Aug. 3, 2021. Square Inc., the digital-payments platform led by Twitter Inc. founder Jack Dorsey, agreed to buy Australian buy-now, pay-later company Afterpay Ltd. for $29 billion in its largest-ever acquisition. Photographer: Brent Lewin/Bloomberg

Australia’s government moved to regulate buy now, pay later finance firms under credit laws, drawing the line on a months-long process aimed at tightening requirements on the maturing industry.

Firms will need to adhere to responsible lending obligations and hold Australian credit licenses, according to Stephen Jones, the nation’s minister for financial services. They’ll also face a range of minimum standards on conduct and products.

Buy now, pay later has “provided a valuable source of competitive pressure on traditional credit products, such as credit cards or payday loans, ” he said in text of a speech Monday. “But with those opportunities have come new and growing dangers to consumers, which up until now have been largely unregulated and unchecked.”

The new laws will impact consumer credit firms from Zip Co. to Afterpay Ltd., which compete with banks to provide interest-free credit that’s typically repaid in installments. It’s an industry that boomed during the pandemic but has struggled in recent months amid soaring interest rates and the threat of stricter regulation.

This is “long overdue regulation which will further pressure already marginal business models,” said Matthew Haupt, a fund manager at Wilson Asset Management in Sydney.

Zip shares declined 7% as of 10:46 a.m. in Sydney, compared with a 0.2% dip on the S&P/ASX 200 Index. Sezzle Inc. slipped 2.3% and depositary receipts of Afterpay’s US parent Block Inc. declined 2.1%. Zip is well positioned for the changes as it already holds an Australian credit license, according to Matt Ingram, Bloomberg Intelligence senior industry analyst in Sydney.

The plans outlined Monday will now involve industry consultation on the detail, Jones said. They will bring the industry “into line with other regulated credit providers, simplifying our regulatory system and addressing concerns about competitive neutrality,” Jones said.

What Bloomberg Intelligence Says
“Zip Co is better placed than Block’s Afterpay and Klarna for Australian government plans to regulate buy-now-pay-later (BNPL) products under credit laws” — Matt Ingram, Bloomberg Intelligence senior industry analyst

Jones said he expects a final bill to be introduced into parliament by the end of this year after draft legislation that will be shared for consultation before that.