This article is republished from LexisNexis Financial Services Newsletter 2019 - Vol 17 No 10.
Authored by Andrea Beatty, Partner and Chelsea Payne, Law Graduate.
“Buy now pay later’ is a rapidly expanding industry. It is particularly attractive to young people – it is like ‘credit’, but it is not considered ‘credit’ under Australian credit laws. As a result, it is not regulated like consumer credit.
In November 2018, ASIC released the much anticipated Report 600: review of buy now pay later arrangements (Report), which provides insight into the relatively unregulated ‘buy now pay later’ industry (industry). The review, which examined six buy now pay later providers (providers),[1] identified areas that ASIC intends to monitor and potentially extend its new product intervention power to.[2]
Buy now pay later arrangements allow consumers to purchase goods and services and pay off the purchase price over a specified period of time. Although each provider offers different payment arrangements, the arrangement involves three contracts between the consumer, the merchant and the provider.[3] The provider assumes the debt of the purchaser by paying the merchant for the transaction, minus merchant fees.[4]
The industry is not regulated by the National Consumer Credit Protection Act 2009 (Cth) (NCCP Act) either because the provider does not charge the consumer for providing the credit, or they offer continuing credit contracts that fall within the exemption in s 6(5) of the NCCP Act as they only include charges for credit that amount to a fixed fee, which does not vary according to the amount of credit provided.[5] However, because these arrangements are considered ‘credit facilities’ under the ASIC Act 2001 (Cth), ASIC has some jurisdiction, including for misleading, deceptive or unconscionable conduct.[6]
1. The industry
The Report found that the industry is rapidly growing, with the customer base increasing from 400,000 in the 2015-16 financial year to 2 million in the 2017-18 financial year, and the number of transactions per month growing from over 50,000 in April 2016 to 1.9 million in June 2018.[7]
The total value of transactions per month rose from $56 million in April 2016 to $346 million in June 2018.[8] The average transaction value fell from $1,098 in April 2016 to $178 by June 2018,[9] likely due to the increase in low-value purchases available from retailers such as K-Mart and Target.
Total revenue for the industry increased from $32 million in the June 2016 quarter, to $78 million during the June 2018 quarter.[10] The total balance of outstanding debt from these arrangements grew from $476 million in April 2016 to $903 million by June 2018.[11]
The industry has seen growing revenue from missed payment fees, rising from 2% of total revenue in the quarter ending June 2016 to 12% in the quarter ending June 2018.[12] This trend is attributable to the entry and growing popularity of providers that charge multiple missed payment fees, the increase in lower-value purchases and the recent entry of many first-time users.[13]
1.1 Price inflation
ASIC’s review found that some arrangements result in the price of goods being inflated for users, especially for high-value purchases, goods with less transparent and ‘negotiable’ prices, and services.[14] ASIC believes that this inflation may be misleading if not disclosed to users, as retailers are obscuring the actual cost of using the arrangement.[15] ASIC is currently reviewing the legal position of price inflation, and has taken action against providers for attempting to avoid the NCCP Act by establishing artificial business models.[16]
