A rising trend in consumer spending is based on the model of Buy Now Pay Later (BNPL) purchases. Unseating traditional lines of credit such as credit cards, hire purchase or store card models, the concept of walking out of a retailer, goods in hand without spending upfront or paying interest on future repayments has proven to be an immensely popular notion for consumers. So much so that the BNPL model has expanded into servicing commercial expenses for larger values.
In many cases, BNPL providers are not governed by relevant consumer credit legislation as they are not classified as a provider of credit, meaning they are unbound by the regulations contained in the CCCFA.
Other parts of the world are facing similar concerns. The meteoric adoption of the BNPL model is starting to become a cause uncertainty in the United Kingdom, with the UK Financial Conduct Authority highlighting that more than 10% of BNPL Customers are in arrears. Due to the nature of reporting, potential defaults are not being included into the traditional reporting entities such as credit bureaux, meaning that they remain unseen by other potential lenders, making for ill informed decisions.
In Australia, there are similar findings with ASIC reporting that more than 20% of BNPL users had missed a payment within the 2018-2019 financial year. This translated into a total cost of $43 million in late repayment charges to the consumer, and perhaps more concerning a growth of 38% compared to the previous financial year.
In New Zealand BNPL providers also remain unregulated. In 2019, the then Minister of Commerce Kris Faafoi reviewed the industry and recommended the creation of “a new regulation-making power which can bring new products such as (BNPL) under the (CCCFA), if needed in future.” And fast forwarding to present day, there has been little action on this concept as the Ministry of Business, Innovation and Employment (MBIE) has restated that there is “there is very limited evidence of harm from (BNPL products) to date.
However, there are many industry bodies lobbying that the ease of account generation and lack of scrutiny can cause problems down the line for consumers. Kate Reddington from ‘Sorted’ aired her concern saying, “because there’s multiple providers of buy-now pay-later, people can sign up to multiple payments, and their debts can potentially really spiral out of control and that’s when people get into trouble and that’s what we’re really worried about”. Adding to this opinion are the Financial Services Federation (FSF) and Christians Against Poverty (CAP). Both organisations have petitioned the current Minister of Consumer Affairs, David Clark to bring the BNPL sector under responsible lending. According to Lynn McMorran of the FSF, Minister Clark has asked for advice from officials relating to his regulation-making powers, and as a result a discussion paper on BNPL regulation is expected later in the year. In the same article, CAP’s Sam Garaway stated, “With potential for demand to explode, unregulated buy now, pay later products are a ticking time bomb for vulnerable consumers.”
In efforts to improve responsible lending, a growing number of the traditional financiers are utilising new data. Comprehensive Credit Reporting programs and income and affordability metrics driven by changes to the CCCFA are providing granular detail. By utilising such tools, lenders can scrutinise the BNPL repayment habits of individuals, allowing them to from a more complete view of their customers creditworthiness and financial position. With more visibility of BNPL data, regulators may remain comfortable not regulating in the near future as “The government does have new powers under the Credit Contracts and Consumer Finance Act to extend legal requirements to BNPL schemes, which can be used if industry-led measures are unsatisfactory,” according to an MBIE statement.
While the long-term future of BNPL governance is not crystal clear, there are certainly lessons the BNPL concept can offer to the broader credit industry. Today’s consumers have demonstrated increasing willingness to award their custom to providers that work with their lifestyles and provide great customer experience, where the BNPL providers have carved their niche. The ease and simplicity of online account application has clearly resonated with customers as providers have established an electronic process requiring very little input or documentation from applicants. While many would argue that BNPL providers are able to stand up a streamlined applications because they do not require extensive due diligence, it is important to note that simple automated customer origination is well within the grasp of any credit provider, and investment into such processes should be considered as customers demand better customer experience and instant answers.
Being an established provider of credit origination and automation software to the Asia-Pacific credit markets, Credisense has established innovative systems for finance providers ranging from large telecommunication suppliers to trade credit providers and consumer lenders of every size. Utilising proprietary no-code technology, Credisense customers have the power to design, implement and manage their own automated customer onboarding programs without the requirement for vendor assistance or extensive IT oversight.
If you would like to find out more about the Credisense service, please visit Credisense to book a free demo.