The Times Australia
The Times World News

.

The rules for Afterpay, Zip and other 'buy now, pay later' providers are changing. What it means for you, and them

  • Written by KB Heylen, PhD Candidate, Macquarie University
The rules for Afterpay, Zip and other 'buy now, pay later' providers are changing. What it means for you, and them

More than 6 million Australians[1] have used the “buy now, pay later” lending services offered by Afterpay, Zip and more than a dozen other companies[2].

Buy now, pay later offers an easy and convenient alternative to credit card services. You can sign up and have your loan approved almost immediately. One reason for this is that buy now, pay later companies aren’t regulated by the same consumer-protection rules that apply to other credit providers.

But now the Australian government is going to change that – at least partly, in response to concerns the unregulated sector will lead to more people get caught in debt traps.

“BNPL looks like credit, it acts like credit, it carries the risks of credit,” federal Assistant Treasurer Stephen Jones said this week[3].

The government will bring the industry in line with with other credit products by amending the National Consumer Credit Protection Act to include buy now, pay later companies, defining buy now, pay later companies as credit providers.

Here’s what this means, for you and the sector.

What is a buy now, pay later service?

First, let’s recap what exactly makes buy now, pay later companies different to other forms of credit.

The crucial difference is that buy now, pay later companies don’t charge interest, which is how the National Consumer Credit Protection Act[4] defines a credit service. Instead buy now, pay later companies charge retailers a commission on transactions and charge customers late fees if they fail to make repayments on time. Some also charge monthly account keeping fees.

This has enabled buy now, pay later lenders to pitch their products as “interest free”, as well as avoid the regulatory requirements of the federal credit law.

Read more: What's the difference between credit and debt? How Afterpay and other 'BNPL' providers skirt consumer laws[5]

One of these is the requirement to perform a credit check, which involves assessing a customer’s financial history and capacity before lending money, although some buy now, pay later companies already do so voluntarily. This is why financial regulators such as the Australian Securities and Investments Commission have warned of the risk[6] of buy now, pay later products contributing to financial stress and hardship.

More credit checking

The changes to the Credit Act will require all buy now, pay later providers to hold an Australian Credit Licence, like other credit providers[7], and to improve their dispute resolution, hardship, product disclosure and marketing practices.

Most importantly it will impose credit-check requirements.

The comprehensive credit-reporting framework currently requires credit providers such as banks to report on consumers’ loan, repayment, overdue and default histories. This data is used by providers when assessing a person’s affordability and suitability for credit.

Afterpay and others have argued they don’t need this credit-reporting system because they use their own algorithmic checks. The problem is no one knows what data they are using or how they are making decisions.

Afterpay sign on shop window.
Shutterstock While the credit reporting system is not perfect, it is better to have all providers working from the same data set than individual companies making up their own rules. As credit services, buy now, pay later providers will gain full access to this data, covering consumers’ repayment and hardship history for other credit products such as loans and credit cards. This means that when you apply for a buy now, pay later loan, the process may take longer, with a greater possibility of rejection if you have a history of late or overdue loan or credit card repayments. However, unlike banks, provider will not necessarily have to report your data into the credit-reporting system. This is because the government doesn’t regard them as risky as the likes of pay-day loans or consumer leases. So a buy now, pay later provider won’t know your history with other buy now, pay later providers. This means you could theoretically continue to have multiple services, which is a known contributor to debt stress. Spending limits and fee caps The new regulations will put cap on fees for late or missed payments. Currently, Afterpay, Zip, Humm and others having very different approaches to how they charge fees, making it hard for customers to compare and assess. While the lure of “no interest” may seem appealing, these late fees can add to a huge effective rate. For example, research from Curtin University[8] shows falling behind over ten fortnightly repayments for a small purchase results in an effective annual interest rate of 28.25% for Afterpay, 29.32% for Zip and 177.44% for Humm’s “Big Things” loans. These annualised rates are higher than most credit cards. The new cap should help bring the fees in line with similar charges on other credit products. Another changes to the Credit Act will mean your credit limit can no longer be increased unless you explicitly ask for it. Currently services like Zip and Afterpay start first-time users with a low credit limit and automatically increase it based on good repayment history. This could mean buy now, pay later providers will offer larger credit limits to users up front, just like credit cards. This could be risky for some customers, but it also presents a higher risk for buy now, pay later services. Read more: 90% of young people had financial troubles in 2022, and 27% used 'buy now, pay later' services[9] What this means for the industry Greater protection from consumers will likely result reduce revenue for buy now, pay later providers. Restricting the ability to automatically increase credit limits means buy now, pay later companies must either offer higher starting limits and accept higher default risks or contend with lower transaction totals overall. The cap on fees and charges will likely bring in less revenue. More rigorous credit checks may result in fewer new customers. Bringing all providers into the regulated system will allow for greater transparency around how credit decisions are made and create a more level playing field between credit providers. The government will now work with industry and consumer groups to refine the details. The new laws are expected to be introduced to Parliament later this year.

Read more https://theconversation.com/the-rules-for-afterpay-zip-and-other-buy-now-pay-later-providers-are-changing-what-it-means-for-you-and-them-206184

Times Magazine

Headless CMS in Digital Twins and 3D Product Experiences

Image by freepik As the metaverse becomes more advanced and accessible, it's clear that multiple sectors will use digital twins and 3D product experiences to visualize, connect, and streamline efforts better. A digital twin is a virtual replica of ...

The Decline of Hyper-Casual: How Mid-Core Mobile Games Took Over in 2025

In recent years, the mobile gaming landscape has undergone a significant transformation, with mid-core mobile games emerging as the dominant force in app stores by 2025. This shift is underpinned by changing user habits and evolving monetization tr...

Understanding ITIL 4 and PRINCE2 Project Management Synergy

Key Highlights ITIL 4 focuses on IT service management, emphasising continual improvement and value creation through modern digital transformation approaches. PRINCE2 project management supports systematic planning and execution of projects wit...

What AI Adoption Means for the Future of Workplace Risk Management

Image by freepik As industrial operations become more complex and fast-paced, the risks faced by workers and employers alike continue to grow. Traditional safety models—reliant on manual oversight, reactive investigations, and standardised checklist...

From Beach Bops to Alpine Anthems: Your Sonos Survival Guide for a Long Weekend Escape

Alright, fellow adventurers and relaxation enthusiasts! So, you've packed your bags, charged your devices, and mentally prepared for that glorious King's Birthday long weekend. But hold on, are you really ready? Because a true long weekend warrior kn...

Effective Commercial Pest Control Solutions for a Safer Workplace

Keeping a workplace clean, safe, and free from pests is essential for maintaining productivity, protecting employee health, and upholding a company's reputation. Pests pose health risks, can cause structural damage, and can lead to serious legal an...

The Times Features

Prefab’s Second Life: Why Australia’s Backyard Boom Needs a Circular Makeover

The humble granny flat is being reimagined not just as a fix for housing shortages, but as a cornerstone of circular, factory-built architecture. But are our systems ready to s...

Melbourne’s Burglary Boom: Break-Ins Surge Nearly 25%

Victorian homeowners are being warned to act now, as rising break-ins and falling arrest rates paint a worrying picture for suburban safety. Melbourne residents are facing an ...

Exploring the Curriculum at a Modern Junior School in Melbourne

Key Highlights The curriculum at junior schools emphasises whole-person development, catering to children’s physical, emotional, and intellectual needs. It ensures early year...

Distressed by all the bad news? Here’s how to stay informed but still look after yourself

If you’re feeling like the news is particularly bad at the moment, you’re not alone. But many of us can’t look away – and don’t want to. Engaging with news can help us make ...

The Role of Your GP in Creating a Chronic Disease Management Plan That Works

Living with a long-term condition, whether that is diabetes, asthma, arthritis or heart disease, means making hundreds of small decisions every day. You plan your diet against m...

Troubleshooting Flickering Lights: A Comprehensive Guide for Homeowners

Image by rawpixel.com on Freepik Effectively addressing flickering lights in your home is more than just a matter of convenience; it's a pivotal aspect of both home safety and en...