17 February 2023





Subject: Buy Now, Pay Later


ALI MOORE: Well, do you use buy now pay later services? Treasury is taking submissions at the moment on whether the sector should be more tightly regulated. Stephen Jones is the Assistant Treasurer and Minister for Financial Services. Stephen Jones, good morning.


STEPHEN JONES: Ali, good to be with you.


MOORE: Given it's essentially credit, why isn't it, this sector buy-now-pay-later, why isn't it subject to the same lending standards as credit card providers?


JONES: Currently, they're operating outside the purview of the credit act because of the way the contracts and their business models have been designed. Make no criticism of the providers for doing that. There's some great innovation going on in the sector, but it's matured now to a point at providing really healthy competition to credit card providers and we want to ensure that it's appropriately regulated.


MOORE: So, how many people use it? Do you have any sense of that?


JONES: There's about 7 million accounts and here's the thing, some of them will be individual accounts and some of them will be people who have multiple accounts with different providers. And therein lies one of the things. It's not uncommon for people to have multiple credit cards, but when they do get multiple credit cards, there's credit checks to ensure that they're not getting in over their head. We want to ensure that with buy now, pay later products, that there is the appropriate level of regulation and things like credit checks have really been the thing that have come to the fore in the consultations we've had.


MOORE: So, in essence, how does it differ from a credit card for people who have never used buy now, pay later? How do you see them as different services?


JONES: All of them - from a consumer point of view, largely, there's no difference. I guess the sunshine moment happened for me when I walked into my doctor's surgery and I saw on the counter a sign that said you can pay by Mastercard, Visa card, Afterpay or Zip. So from a consumer point of view, at the point of payment, they operate the same, all have slightly different arrangements. Some of them, you pay by instalment over the course of a month and if you haven't paid it off at the end of the month, you receive a fee. They don't call it interest and therefore it's not a credit product. These are the things that we're digging into as a result of this review, as a part of this review and I'll have more to say on any regulatory steps we take. But I've signalled pretty strongly to the sector, if it walks like a duck, sounds like a duck, it's probably a duck and it should be regulated by - in similar ways to other credit products.


MOORE: That's how they make their money, isn't it? It's not an interest rate that's charged just through the course or through the act of using it. It's only if you don't make your payments.


JONES: Yeah, again Ali, they're all different. It's not like they all have the same business model. Some of them work exactly as you've just described, others work like a credit product and are regulated as a credit product actually. So they do charge interest. I'm really avoiding naming any of the brands in this interview.


MOORE: No, sure enough.


JONES: So, I won't name the brands that are acting like a credit product and those that aren't, but they all - they're all a little bit different and that's why we've conducted the review call for consultations -


MOORE: And does it concern you? We know, we've talked and you've talked, you were talking to Raf just the other day about interest rates. The stresses that some people, many people in the community are under. We've seen transactions in this sector balloon, they were up more than I think was 37 per cent in the year to June, which is a massive increase. Are you concerned people are being caught?


JONES: Look, for the most part that increase in usage, is users just saying this is a convenient way for me to shop. People do less and less transactions, retail transactions with cash. They have an app on their phone, they pay you directly with a tap and go to their bank account or they might use one of these buy-now-pay-later products to help them smooth their income over the course of the month. The vast majority of those transactions perfectly safe and sound and rational home budgeting. But there are people who are getting way in over their heads. They'll have multiple accounts and the way the credit checks are working there and other things are working there at the moment, there doesn't seem to be enough rigour in that process. So, that's something that we are looking at it. The trick here and this is the number of it, how do you ensure that the regulation doesn't crush a great business model and prevent people who are using it safely and soundly from continuing to do so, but doesn't allow essentially unsafe practices for those who are getting in over their head? And that's the balance we're going to try and find.


MOORE: That was going to be my next question, whether you would kill the business model. If they have to take the same - if they have to ask customers for income and expenses data and all the sorts of information and hoops that we jump through to get a credit card for a bank, for example, is that going to kill the business model? We've already seen at least one of these afterpay services call in administrators.


JONES: Yeah, and that's the trick and absolutely my intention is no, my intention is to ensure that we can regulate appropriately to the risk. I think an important point to make here is for most of these buying now pay later operators, the transactions are very small. We're talking about $50 to $100, $200, a pair of jeans, that sort of stuff, highly used in the fashion area and the clothing line. So, the objective is to regulate to risks; small transactions, small account balances. It's not like you need the same sort of credit checks that you would if you were taking out a million dollar home mortgage.


MOORE: So, is it possible, though, that you do that you do a tiered regulatory system, so if a transaction is less than $100, it's this. If you're going to do a transaction of $300, it's this. Could it be like that or is that too complicated?


JONES: Look, it shouldn't be too complicated. Again, the principle that I've got in mind and I've been talking to the sector about is how can we regulate the risk? How can we ensure that the right level of rules are put in place commensurate with the risk that might be involved with this? Again, not wanting to crush something that is operating perfectly safely for the majority of people while putting in place the guardrails to prevent poor business practice, but perhaps by new operators who join the industry down the track and to prevent people getting in over their head, as we do with other credit products.


MOORE: And Stephen Jones, you indicated you need more time. What's the timeline on getting some decisions around the regulation of the sector?


JONES: It's a this year job. Definitely a this year job. I've got to consult with my colleagues. We run a cabinet-style government, so any decision on this is not just going to be made by Stephen Jones, Minister. It will be made by the entire Cabinet and the government, and we'll move forward on that basis. And the good thing about that is, after consultation and many eyes looking at it, you come up with the best model at the end of the day.


MOORE: Stephen Jones, thanks for joining us.


JONES: Great to be with you.


MOORE: Stephen Jones there, Assistant Treasurer and Minister for Financial Services.