SYDNEY, Australia—The Australian government has introduced legislation that would require buy-now-pay-later (BNPL) firms to run credit checks on borrowers in an attempt to regulate the rapidly growing payment option.
Up to now, the sector has avoided rules that apply to credit card providers as BNPL firms make most of their revenue through merchant fees, rather than interest payments, Reuters reported.
The Proposal
Under the proposed new laws, however, BNPL providers must hold an Australian credit license, putting them under the watch of the corporate regulator, the Australian Securities and Investments Commission.
"If it looks and acts like credit, then it should be regulated as such," Minister for Financial Services Stephen Jones said in a statement.
The legislation would set up a new category of "low-cost credit" to reflect the lower risk and cost of BNPL compared with other regulated forms of credit, he said, according to Reuters.
Surge in Volume
“BNPL business surged amid an online shopping frenzy spurred by stimulus payments during COVID-19 and ultra-low interest rates, but concerns about repayments have been rising as Australia battles sticky inflation,” Reuters reported, adding that Gen Z consumers form the majority of BNPL users.
Australia is home to about a dozen listed BNPL providers, and has about seven-million active BNPL accounts with an average transaction amount of A$136, according to treasury data released last year, Reuters said.
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