Buy now, pay later (BNPL) stocks such as Afterpay Touch Group (ASX: APT) and Zip Co (ASX: Z1P) have welcomed a senate committee’s raft of recommendations into the sector, which includes the development of an industry code of practice.
The senate’s Economics References Committee report outlined 20 recommendations aimed at improving oversight and conduct of marginal credit service providers such as payday lenders, consumer leases, and debt advice firms.
The inquiry, which occurred against the backdrop of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, heard from financial counsellors and credit lawyers about the financial troubles that affect vulnerable Australians engaging with marginal credit service providers.
The BNPL sector was a key focus during the inquiry, given the industry is now one of Australia’s fintech growth stories.
The financial payment providers have come under heavy scrutiny in recent months, after reports emerged of consumers getting into debt with the services. This prompted debate over whether the services should be forced to meet responsible lending rules in a push to protect consumers.
“Not only does the BNPL sector now account for a considerable proportion of consumer credit, but this credit is being taken up by new and young customers who have limited previous experience of managing credit,” the report said.
Unlike other credit providers, BNPL products are not covered by the National Consumer Credit Protection Act 2009 and providers have no obligation to undertake credit checks.
In its recommendations, the committee urged this gap be filled via the establishment of a regulatory framework and an industry code of practice.
In addition, the committee recommended the Australian Securities and Investments Commission (ASIC) reviews advertisement of financial products and issues an updated regulatory guide on how credit products can interact with consumers in an online environment.
“There is a clear role for regulators in ensuring that buy now pay later is subject to proper regulation that will provide consumers with the same protections they would enjoy with respect to products with a similar risk profile,” the report stated.
Industry responds to recommendations
BNPL providers Zip Co and Afterpay were among the BNPL companies that gave evidence to the committee.
In a statement to the market today, Afterpay described the recommendations for the BNPL sector as sensible and appropriate.
“If adopted by the government, Afterpay looks forward to working with ASIC, the government, consumers and industry on a suitable regulatory framework and to achieve the best possible outcomes,” the company said.
Afterpay, which doesn’t expect any material impact on its business based on the recommendations, said it was in favour of minimum standards for the industry, including compulsory membership of the Australian Financial Complaints Authority and genuine hardship policies that protect those in need.
Zip Co was as equally welcoming, stating it supported regulation that strengthened community confidence in the BNPL sector.
“Zip looks forward to continued engagement with government and ASIC on any new legislation, and other industry participants to form an industry code of practice,” Zip managing director and chief executive officer Larry Diamond said.
The company also used the report findings as an opportunity to reinforce its responsible lending conduct.
“From day one, Zip has always worked hard to be one of the most responsible players in the sector,” Zip executive director and chief operating officer Peter Gray said.
“We have built the business to ensure we lend responsibly and are well placed to satisfy any future changes to regulation with little or no disruption to our business.”
Splitit collars ex PayPal chief
Afterpay rival Splitit (ASX: SPT), which only recently made its ASX debut, remained silent on the committee’s recommendations, announcing instead the appointment of former PayPal managing director Andrew Pipolo to lead its Australian and Asia Pacific growth strategy.
Mr Pipolo will be based in Sydney, working closely with directors Spiro Pappas and Thierry Denis and the rest of the team to establish Splitit’s presence in the region.
During his career with PayPal, Mr Pipolo managed the company’s entry into both the Australian and Japanese markets, cementing distribution alliances covering over $20 billion in online payments.
The BNPL companies were travelling well in afternoon trade, with Zip’s shares up 6.9% to $1.54, while Afterpay soared 19.5% to $20.57. Splitit’s shares gained 13.3% to $0.85.