Reflections: Why are buy now, pay later schemes soon to be regulated?

26 May 2023

Did you know there are 7 million active “buy now, pay later” (BNPL) accounts in Australia?

On Monday 22 May the Federal Government announced it will be regulating the Buy Now, Pay Later industry.

That means soon, apps like AfterPay and Zip will be regulated similarly to credit products and BNPL providers will be required to have a credit licence, hardship requirements, and a set of minimum standards for conduct.

So, why the change to introduce tighter regulations? And why now?

In December last year 22 organisations from the Close Lending Loopholes Alliance, including leading consumer advocates, community groups, family violence organisations, legal centres, and financial counsellors, made a joint submission to the treasury about regulating BNPL in Australia.

The submission said the under-regulation of BNPL was causing serious economic and social harm and criticised BNPL products for “exploiting loopholes in Australia’s credit law to sell people into unaffordable debt.”

According to Good Shepherd’s 2022 Practitioner Survey, clients commonly used BNPL to purchase essentials like clothes and shoes for children (75%), food and groceries (66%), utilities (44%), and medical and health services (31%).

It also found one in three women and single parents have BNPL debt, compared with one in five men.

The 2022 Australian Household Threshold Report had similar findings, with 53% of Australians saying they would use BNPL to pay unexpected but necessary costs like the dentist, car repairs, and vet services.

What these findings show is that BNPL is used more often by people who are already experiencing high levels of financial insecurity, such as those reliant on welfare payments, women, single parents, and young people.

Which is concerning considering it’s relatively easy to sign up to BNPL. In fact, around 40% of BNPL users have more than one active BNPL account.[1]

Although BNPL markets themselves as a budgeting tool, for financially vulnerable Australians, they are compounding poverty and debt.

A 2022 consumer survey by CHOICE found that one in five BNPL users have missed or been late with a payment for a BNPL service. Of those users, two in five have taken out another loan and one in four have gone without essentials to make repayments or pay BNPL. [2]

And while BNPL may appear to be interest free, that isn’t really true.

Establishment fees, account and administration fees, payment processing fees, late fees, and account closure fees all make it difficult to understand the real cost of BNPL products.

Researchers from Curtin University assessed repayment schedules and fees for different BNPL products. It found Humm had an effective annual interest rate of 16.13%, and effective annual interest rates of 28.25% for Afterpay and 29.32% for Zip.

These rates are pretty close, if not higher, than the average credit card’s annual interest rate.

Indeed, Financial Services Minister Stephen Jones recently said that BNPL “looks like credit, it acts like credit, it carries the risk of credit” and that’s why from the end of this year, it’s going to be regulated like credit.



[1] Boshoff, Elizabeth and Grafton, David and Grant, Andrew R. and Watkins, John, Buy Now Pay Later: Multiple Accounts and the Credit System in Australia (October 15, 2022)

[2] CHOICE Consumer Pulse September 2022

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