Australian BNPL sector touts $14.3 billion in economic benefits as lawmakers weigh the fate of pay-in-four providers

As Australian lawmakers consider how best to regulate the flourishing buy now, pay later (BNPL) sector, a leading industry group claims pay-in-four systems provide a massive boon to local retailers and benefit local consumers.

On Tuesday, the Australian Finance Industry Association (AFIA), which counts Afterpay, Zip, Brighte, and Humm as members, released research defending the advantages of BNPL to businesses and users alike.

The report arrives just weeks after new Financial Services Minister Stephen Jones declared it is time to regulate BNPL services under credit regulation, instead of relying on AFIA’s self-regulated Code of Practice.

BNPL systems have contributed $14.3 billion to the Australian economy, the research found.

Some $11.9 billion of that figure can be attributed to BNPL transactions, and the 5.9 million Australians who count as active BNPL users.

More than 135,400 merchants benefited from BNPL systems in the 2020-21 financial year, AFIA claims.

BNPL transactions have accounted for an average of $18,576 in revenue for small businesses with the payment system in place, the report added.

Those figures show retailers are “using BNPL to help them grow their businesses and participate in the digital economy”, says AFIA CEO Diane Tate.

The data was drawn from thousands of customer surveys, hundreds of merchant responses, and insights a handful of BNPL players, collected between December 2021 and February 2022.

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Beyond the economic contribution of BNPL services, the report also hits back at criticism from consumer groups and financial counselors, who claim BNPL services can expose vulnerable consumers to debts they can’t repay.

The report claims just 0.34% of active BNPL accounts were subject to financial hardship arrangements at the end of last financial year.

Tate also positioned BNPL as financial tool helping users smooth out their weekly expenses.

“Consumers can minimise their finance costs, budget and manage their money better and choose how they pay for goods and services, including those they consider to be essential,” she said.

The report is backdropped by government efforts to regulate the BNPL sector as a form of credit.

While lawmakers like Jones say the Code of Practice was suitable as the sector matured, it is coming time to “legislate it and fill any gaps”, he told The Guardian Australia earlier this month.

Unlike credit cards or traditional loans, BNPL services use their fee structures to skirt existing lending laws.

Because they charge consumers no up-front fees, and charge ‘late fees’ instead of interest, services like Afterpay or Zip are not counted as credit providers under the National Credit Act.

This means they are not beholden to the credit-checking standards faced by banks.

Many industry participants say their credit checking standards are just as stringent as the big banks, and AFIA says the Code of Practice is fit for purpose and deserves to be legislated.

However, consumer advocates have urged the federal government must regulate BNPL as a credit product to protect consumers.

In May, Financial Counselling Australia revealed a Youth Allowance recipient, who earned $522 a fortnight, was able to accrue an $8000 debt across multiple BNPL services.

Responding to the latest AFIA report, Gerard Brody, CEO of the Consumer Action Law Centre, said the report actually highlights the way BNPL can harm vulnerable customers.

Taking to social media, Brody highlighted the report’s finding that 4.4% of respondents admitted to going without essentials to make BNPL repayments, and a further 7.3% “cut back” on essentials to make their repayments.

“That’s a huge proportion of customers for whom this product is causing stress,” he said.

“When you twin this stat with the claim that only 0.34% of active customers are assisted with hardship arrangements, we can make some tentative conclusions about the quality of hardship assistance (answer: not high).”

When you twin this stat with the claim that only 0.34% of active customers are assisted with hardship arrangements, we can make some tentative conclusions about the quality of hardship assistance (answer: not high) https://t.co/mdDgxkL78T

— Gerard Brody (@gerardbrody) June 28, 2022

You can read the AFIA report here.