Buy now, pay later providers move into the data business – what does it mean?

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We’ve written in the past about the concern of consumer groups potential risks of Buy-Now-Pay-Later (BNPL) use. We believe this risk is often overstated and the positive effect BNPL is having on consumers, under-appreciated. 

Recently BNPL was once again in the crosshairs of consumer groups in an article by CHOICE ‘Buy now, pay later providers moving into the data business’

The article is an interesting one and primarily highlights the perceived and the real risks to consumers there is in data-sharing. We think this point, along with a couple of others, are worth contextualizing. See below some points from the article we find to be a little over-blown or potentially mis-leading.

  1. Data is being sold to third parties 

The article discussed the many risks associated with digital data sharing. While there is always a degree of risk in data-sharing, privacy requirements are the same for BNPL as any other business. 

So whether it’s your friend’s small online business selling condiments, posters or clothing, or it’s global BNPL businesses; Zip Pay, Afterpay or LayBuy, they play by the same rules. Each of these providers have a strict policy to never on-sell consumer data.

While there are always risks in consumers engaging in trade with businesses, and technology has allowed businesses to market more accurately to these consumers, we believe the benefit BNPL has provided consumers in providing a smarter way of paying for things than credit cards far outweighs the risk.

  1. ‘BNPL is unregulated’

This point is often argued by consumer groups, and infers there are no consumer protections whatsoever in BNPL. This is untrue.  Afterpay, Zip, Klarna and almost all other BNPL options are covered by AFIA’s BNPL Code of Conduct, which has enshrined consumer protection measures across the wider BNPL industry. 

This Code goes above and beyond the law, setting best practice standards to strengthen consumer protections. It also includes standards that traditional credit cards can’t meet such as preventing new BNPL products from being offered to those behind in repayments and prohibiting spending on gambling products, (which credit cards have not done in relation to online gambling). 

Not only this, Buy Now Pay Later is also covered by ASIC’s broad product intervention power. This ensures that all financial services can be subject to fit-for-purpose regulation. It allows ASIC to intervene in a targeted manner, to directly address the potential consumer harms that may be arising in a particular market. 

As well as this, it’s important to remember that under ASIC’s Product Design and Distribution Obligations (DDO) BNPLs are required to have an adequate product governance framework to ensure products are targeted at the right people. These protections are the same for anyone selling financial products in Australia. ASIC’s product intervention powers and DDOs both have broad applicability and provide a comprehensive framework of consumer protection.

  1. ‘BNPL is the same as credit so should be regulated the same way’

The idea that BNPL is just another form of credit is misleading and potentially dangerous. We’ve always argued that BNPL and credit are fundamentally different products. Credit card companies are incentivised to keep their customers in revolving debt. BNPLs products are incentivised to keep customers paying on time. This fundamental difference should highlight the difference in the way they treat consumers; BNPL do not want their customers in debt.

ASIC recently confirmed that 1.9 million Australians were in persistent credit card debt, with credit cards charging in excess of 20% in interest are commonplace. It could be worse as current federal law caps the total amount of fees and charges on loans such as credit cards at 48%.

We believe there’s a long way to go yet in solving the debt issues many Australians have in relation to credit cards and this is something we’ll continue to highlight. As always, the smartest way to pay for anything is with the money you have, however in the event you need something and don’t have cash, credit cards are rarely a good idea.