The BNPL party is over and regulations are the least of its problems

After operating for more than ten years in the finance industry’s regulatory blind spot, the day of reckoning is nigh for the buy now, pay later (BNPL) industry.

It couldn’t have come at a worse time for the BNPL operators whose operations have been hit by high interest rates.

It’s a real step change for a sector that has until now enjoyed optimum conditions to thrive – a regulatory free-for-all and ultra-low interest rates. Without the regulation that forces the BNPL to be classified as credit, operators have been able to sign up new customers with little or no credit checks.

This has meant the addressable market for BNPL is virtually everyone.

Merchants had little choice but to follow customers, who were enticed by a payment method that satisfied the desire for instant gratification and easier budgeting. BNPL has become a durable part of the payments landscape for Australians – and while that won’t change, the economics for the BNPL players will.

To say that BNPL has simply fallen between the regulatory cracks of the Australian Securities and Investments Commission (ASIC), the Reserve Bank and the Federal Government would be a generous interpretation. There was a distinct disinclination from the regulators to have any hand in turning down the music once the BNPL party started.

This ‘Wild West’ approach was justified on the grounds that the industry was too small and onerous regulation would ‘stifle innovation’. Then there was the fact that BNPL operators ‘technically’ didn’t provide credit so didn’t need capturing under the legislation that governed credit.

A Senate inquiry in 2020 into fintechs found there was no need to treat BNPL like credit card providers. Both ASIC and the Reserve Bank took multiple looks at the BNPL industry and were similarly unmoved to regulate, choosing instead to put a pin in it or kick the can down the road.

This is despite increased noise from consumer groups around hardship faced by BNPL customers.