Not a day seems to go by without a mention of the success of those fintechs in the Buy Now Pay Later sector.
Stock pickers say the prices of the likes of Afterpay and Zip have the legs to carry on climbing much higher than current market valuations that see the sector being worth $100bn.
But there are those who are sending a note of caution, calling for tighter controls and regulatory oversight as consumers could be left with unnecessary debts, citing statistics showing 20% of those who have BNPL loans have defaulted on at least one payment.
While a code of conduct drawn by the Australian Finance Industry Association and its eight members is due to be released at the beginning of March there are those who say the sector needs to be regulated.
Financial Counselling Australia CEO Fiona Guthrie is one of those who wants them to come under the National Credit Act.
“We need an even playing field when it comes to credit. If it looks like a duck, and quacks like a duck, it is a duck,” she says.
“Buy-now pay later is credit and should be regulated like other credit products.
“These are not substitutes for clear obligations in the law enforced by ASIC.”
Australian Finance Industry Association chief executive Diane Tate is confident the association’s code will be more than enough.
“The AFIA BNPL Code is a world-first and goes above and beyond the law, it strengthens consumer protections and sets best practice standards for BNPL providers.
“The buy now pay later sector is a perfect example of competition and innovation enhancing consumer choice.
“Even the sector itself is diverse - there is a broad range of business models so customers wanting a BNPL option can chose the right one for them depending on their purchase type, payment preferences and circumstances.
“Self-regulation is an important tool in the arsenal that protects customers in the finance industry.
“It has two key advantages over legislation and regulation, it can be tailored to a sector – particularly useful for innovative products or services – and it can be much quicker at addressing emerging issues, responding to changes in customer expectations, or supporting market developments.
“Self-regulation is an important supplement to legislation and regulation.
“There is a misconception that the BNPL products and services are unregulated. BNPL providers are required to meet various legal and regulatory obligations, and have oversight from ASIC, ACCC, AUSTRAC, OAIC and the courts."
UNSW Business School Associate Professor Rob Nicholls - a specialist in policy and regulatory issues - thinks the sector will “ultimately end up being regulated more closely”.
He said: “I know we've had the Reserve Bank governor saying, "No, there shouldn't be intervention because we need to prioritise innovation."
“But that prioritisation of innovation is in an environment where we've got 20% of all Afterpay customers having missed at least one repayment schedule.
"I think ultimately there needs to be a degree of consumer protection in that sector and I think they'll end up being regulated anyway.”
CBA chief executive Matt Comyn is another who believes the BNPL sector will be regulated, though it isn’t imminent.
“When you open a buy now, pay later account and it said you are approved for $1000 that sounds like credit to me … We believe that regulation is inevitable but not imminent,” he told the AFR Banking and Wealth Summit.
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