How the buy now, pay later changes could affect you

First, buy now, pay later firms believe these changes will require them to conduct credit checks on prospective customers via a credit bureau (some already do this). That should help reduce the number of vulnerable customers getting into financial difficulties after taking out more than one buy now, pay later account. But importantly, a credit check is not the same thing as checking if a customer can afford the loan.

Second, buy now, pay later firms will need to comply with responsible lending obligations – meaning there must be some sort of assessment that a loan is “not unsuitable” for the borrower. But, in a win for buy now, pay later firms, these obligations won’t be the same as for other types of credit. Instead, Jones says the rules will be “scalable”, which could mean smaller loans require a less detailed assessment.

A credit check is not the same thing as checking if a customer can afford the loan.

The logic here is that a buy now, pay later loan of $600 shouldn’t require as much checking of a customer’s financial circumstances as a personal loan of $10,000, for example.

But exactly how this will work in practice is not yet clear. We don’t know how far buy now, pay later firms will be required to go in assessing a prospective customer’s income and expenses, or whether they will be required to do it at all.

These details will be hashed in consultation in months ahead, and Monday’s responses showed how the various parties in the debate are lining up. Consumer groups expressed their disappointment that buy now, pay later was getting special treatment, while the buy now, pay later industry indicated it could live with Jones’ compromise.

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For investors, Jones’ moves shouldn’t come as a huge surprise, but if customers must pass more tests before being lent money, it could dampen the sector’s growth outlook. Zip, which had been pushing for the option favoured by Jones, said it would be “business as usual”, though its shares were still down by about 5 per cent.

Afterpay, the biggest local buy now, pay later player, now owned by US giant Block, had been lobbying for a lighter-touch approach, and it may need to add some new steps to its process for signing up new customers. But it said the government’s changes would provide some certainty.

All up, the big buy now, pay later firms appear confident they can handle the changes, and it’s clear Jones doesn’t want to squash what he regards as a “fintech success story”.

But for sharemarket investors, the beaten-up buy now, pay later sector is still a shadow of its former self, after valuations plunged since 2021 on the back of rising interest rates, growing competition from established players, and concerns about bad debts.

Having clarity on regulation helps, but the industry’s bigger challenges remain.

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