PayPal becomes one of the insiders to support Australia's regulations on BNPL

PayPal, one of the providers of buy now, pay later (BNPL) services, is one of the entities that are in support of regulations by the Australian government on the aggressively growing sector. If the regulations are enacted, BNPL providers will operate under the same law as mortgage and credit card providers.

Basis of the regulations

A typical credit card provider gets returns in the form of vendor fees and interest payments. However, as a way of setting themselves apart from this group of companies, BNPL firms do not enact these charges. Instead, their fees are largely in the form of revenue from the retailers. Besides, the process of signing up for these platforms is rather easy and does not involve a background check.

Since they don’t charge interest on their customers, BNPL firms have not been subject to customer credit regulations. This is despite the vibrant growth of the industry; especially as COVID-19 and the subsequent stimulus boosted online shopping.

Generally, people with financial constraints are the most likely to use BNPL services. As such, the proposed regulations are aimed at protecting such vulnerable customers from ending up in debt traps.

Notably, PayPal is one of the entities within the broad financial industry that have supported the need to regulate the sector. In a submission to the Australian government that was published on 16th February 2023, the global payments firm indicated the need for BNPL loans to be under consumer protection law.

As highlighted in the submission, PayPal was in support of “a tailored, proportionate and thoughtful regulatory framework for the BNPL sector via the National Consumer Credit Protection Act to achieve the Government’s objective to deliver greater consumer protections”.

Indeed, it is interesting to see an insider being in support of the regulations. Granted, most BNPL loan providers are in support of either minimal or self-regulation. In addition to its global-used money transfer services, PayPal also avails BNPL loans to its customers. With regards to the regulations in question, the firm has stated that it already has in place certain measures aimed at protecting users from over-borrowing.

Proposed regulation options

Australia’s Department of the Treasury has proposed three options for regulating the BNPL framework. The three options are:

• Regulation of BNPL under the Credit Act: it includes treating BNPL products in a similar manner as other credit products

• Limited regulation of BNPL under the Credit Act: it includes the need for BNPL providers to conduct an assessment that a person’s credit is “not unsuitable”.

• Strengthening the BNPL Industry Code: It includes introducing a “not unaffordable” assessment to evaluate a customer’s ability to afford a BNPL product. This is not the same as a “not unsuitable” check that requires the credit provider to assess if the credit is in line with the individual’s needs.