INTHEBLACK July 2020 - Page 20



F E AT U R E
// B U Y N O W, PAY L AT E R
CONTINUOUS INNOVATION
THE NUMBER OF CONSUMERS
W H O U S E D AT L E AS T O N E B N P L
A R R A N G E M E N T I N C R E AS E D
F R O M 400,000 I N 2 015- 2 016
TO MORE THAN TWO MILLION
I N 20 17- 2018.
“If a customer can’t pay the bill, we lose the
3 per cent or 4 per cent we would have made from
the sale. We still have to pay the merchant, plus we
lose a customer.
“Clearly, the entire business model is built around
getting customers paying on time and making sure
the right customers are using our product.”
Compare that to the credit card model, which,
like it or not, relies on customers being permanently
in debt. If credit card customers pay off their
debt in full, the business makes no revenue. That
industry requires heavy regulation around consumer
protections, because it benefits partly from customers
being in debt, as well as revenue from merchant fees.
Many have argued that BNPL operators should
face similarly stringent oversight.
Up until now, the industry has not had to face
such regulation, even after a Senate hearing into the
industry in early 2019.
“The industry is listening and responding as the
regulatory landscape evolves,” says Diane Tate, CEO
of the Australian Finance Industry Association
(AFIA), which represents more than 100 providers
of consumer, commercial and wholesale finance, and
which has developed its own code of practice.
“In AFIA’s BNPL Code of Practice, there are
many instances where the standards go above and
beyond the law.”
A MODEL OF FINANCIAL DISRUPTION
According to a November 2018 report from the
Australian Securities and Investments Commission
(ASIC), titled Review of Buy Now Pay Later
Arrangements, the number of consumers who used
at least one BNPL arrangement increased from
400,000 in 2015-2016 to more than two million
in 2017-2018. Today, according to AFIA,
approximately 30 per cent of Australian adults,
or about 5.8 million customers, are using BNPL
services. Up to 10 per cent of all online sales now
go through a BNPL provider.
A Roy Morgan report says Australians under the
age of 35 make up almost 56 per cent of BNPL
users, and those over 50 make up just 14.2 per cent.
According to the Reserve Bank of Australia
(RBA), in the 12 months to January 2019, the
24 ITB July 2020
For BNPL players, innovation is crucial in
ensuring that they, the disruptors, don’t
become the disrupted.
PROTECTING
THE CUSTOMER
BNPL operators
emphasise the efforts
they put into protecting
customers and preventing
them from becoming
over-committed.
Left: Christine Blythe
CPA, global head of
transformation
at Afterpay.
01.
All code-compliant
members (signatories) are
required to be a member
of the Australian Financial
Complaints Authority.
02.
BNPL products are not
offered to people under 18.
03.
The assessment of product
suitability for customers is
upfront and ongoing.
04.
If a customer misses
a payment, they are
restricted from further
use until they make
the repayment.
05.
Consumer safeguards
to assist vulnerable
consumers – including
providing hardship
assistance to customers
and never initiating
bankruptcy proceedings
against customers.
LISTEN UP!
number of Australian credit and charge card accounts
dropped from 16.71 million to 15.89 million. Credit
card debt today, the Roy Morgan report says, is down
to A$7 billion from A$8 billion in 2007.
Significantly, 86 per cent of BNPL users from the
past 12 months plan to use a BNPL arrangement
again, according to ASIC. On the downside, however,
“buy now, pay later arrangements can create some
risks for consumers if they take on debt that they may
have difficulty paying back”, the ASIC report says.
In the wrong hands, of course, any service that
results in any debt can be a negative. Gerard Brody,
CEO of the Consumer Action Law Centre (CALC),
says that while the BNPL industry has grown
substantially over the past 12 months, consumer
protections have not.
He says those who contact CALC’s national debt
helpline often have BNPL debt on top of several
other debts such as credit cards, personal loans,
payday loans and utility debts.
“There is no logical reason that people would not
benefit from the protections that apply for other
types of loans,” Brody says. “I’m not saying these
loans shouldn’t be available. People should have
choices and, for many people, they work really well.
But the providers should be required to abide by the
same standards as other lenders.”
This story is available as an audio article. To listen, visit:
cpaaustralia.com.au/bnpl
Above: Zip Pay signage
on a storefront in Sydney,
Australia. The number of
retailers offering Zip Pay
payments increased by
66 per cent to 20,900
between June and
December 2019.
Brody has also seen cases of people prioritising
payments to BNPL providers over payments to
providers of essentials such as rent, electricity and water.
They do this, he says, because they fear being kicked off
the BNPL platform.
Dr Paul Harrison, Deakin University’s director of
the Centre for Employee and Consumer Wellbeing,
says the industry is still under consideration for stricter
regulation. Indeed, ASIC declined to be interviewed for
this story, saying “… we are still looking into the BNPL
sector and hope to have more to say about it in the
coming two to three months”.
However, if there is regulation of the industry, it
shouldn’t be assumed that current legislation for credit
providers would do the job, Harrison says.
“There’s a bit of confusion about how to approach
this,” says Harrison, who gave advice during the Senate
hearing. “People ask, ‘How do we change current credit
legislation to account for BNPL?’ Instead, we need to
think about it differently. We need to start with the
effects of this type of product on consumers, particularly
vulnerable consumers, and work back from there to
figure out whether, and how, we need to regulate it.”
Interestingly, Tate agrees. “The current regulation
of financial services and technology is becoming
increasingly complex,” she says. “We need the right
regulatory settings to properly regulate the different
fintech product and service offerings. A one-size-fits-all
approach is increasingly not appropriate in traditional
financial services, let alone tech products and services.”
As they go about their business
under the watchful eye of
corporate regulators, the BNPL
businesses that so successfully
disrupted the decades-old credit
card industry are now innovating
at a rampant pace to ensure that
they in turn are not disrupted.
Most of the major players
have carved out their own
unique spaces.
For example, Afterpay works by
offering fortnightly repayments
over six to eight weeks to pay off
a purchase, interest free. Zip Pay
has no fixed term, instead taking
a monthly repayment on the
interest-free loan account.
Openpay offers a choice of three
repayment options over a term of
two to 36 months. Certegy brings
to the table continuing credit
contracts with terms of two to
60 months.
Retailers typically now offer
two or three choices of BNPL
providers to suit the needs of
different customers.
Some BNPL operators charge
the consumer fees, and others
do not. Most operators allow
customers to repay early, and
some are making the leap into
entirely new offerings.
At Zip Pay, for instance,
different types of solutions are
offered in different territories.
The business runs a real-time
credit and ID check on every
customer, resulting in “bad debts
well below comparable credit card
companies, well below 2 per cent”,
says Tommy Mermelshtayn, Zip
Pay’s chief strategy officer.
“We’re very much of the
opinion that unless you continue
to innovate, and unless you
continue to deliver real value,
customers will jump to new
players in the market. In the
payments landscape, one of
the fastest-growing and hottest
segments in the market, there’s
been a lot of capital investment.
“To that extent, we just launched
a virtual card solution that enables
our customers to shop anywhere
online. We generate a one-off card
they can use to make a purchase.
That was a pretty massive business
development on our side. It was a
big investment and [was] in
response to customer feedback.”
Like many of the BNPL players,
Zip Pay is also fast becoming an
international brand, seeking
growth in other territories,
including the UK, after perfecting
its art at home. Having begun as a
lean start-up in Australia, Zip Pay
now boasts big-hitter executives,
including chief customer officer
Steve Brennen, previously with
Uber, and chief commercial officer
Hamish Moline, previously with
Visa. The brand also accepted a
A$40 million equity investment
from Westpac Group in 2017.
Having joined Afterpay after her
initial moment of doubt, Blyth has
enjoyed what she says are the most
satisfying and thrilling 15 months of
her career. Her main concern is with
newcomers to the industry who
could give it a bad reputation.
“We’re working hand-in-hand
with the regulators, because this
is a new industry,” she says. “We
know we have an amazing industry,
and we want to keep it that way.
We have very happy customers;
Afterpay has the highest net
promoter score of any digital
payment solution in Australia.
“Our merchants are thrilled with
the increases in basket sizes and
frequencies of purchase. The app is
now one of the biggest channels
for merchants to get a pipeline of
customers. Users, merchants and
our business now have a wonderful,
symbiotic relationship.
“There is so much passion and
energy in this industry, and so
much great leadership. We are all
very excited about the potential
and the human-centred change
we are able to create.”
intheblack.com July 2020 25

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