Afterpay backs increased powers for ASIC in 'buy now pay later' market

Written on the 28 November 2018 by Matt Ogg

Afterpay backs increased powers for ASIC in 'buy now pay later' market

With the Australian Securities and Investments Commission (ASIC) pitch to have its intervention powers extended in the 'buy now pay later' market, one could be forgiven for thinking Afterpay Touch Group (ASX: APT) would be against the idea.

Business has been booming for the Melbourne-based company led by Nicholas Molnar (pictured), with the company cracking into the Melbourne Top Companies list for the first time this year. 

In an announcement to the ASX today, Afterpay claimed it was the only product in ASIC's review into the rapidly growing buy now pay later market that did not charge "other" fees apart from late ones, and even those are capped at $2,000; a level that users can only reach after demonstrating they can pay back smaller amounts over time.

The other providers assessed in the review were zipPay, Certegy Ezi-Pay, Oxipay, BrightePay and Openpay.

"We believe that the intervention powers present a proportionate regulatory response that recognises Afterpay's unique business model and ensures we can continue to serve our millions of responsible customers and our 20,000+ retailers," Afterpay says in the statement.

"ASIC has reconfirmed that Afterpay is different to traditional credit products as Afterpay does 'not charge consumers for providing credit' and is therefore not regarded as credit under the National Credit Code.

"Afterpay appreciates that having clear oversight from ASIC will further increase public confidence in our product and ensure additional consumer protection is provided in the case that our product is used in an unintended manner."

The review found some providers were offering lines of credit worth up to $30,000, and that as of the end of FY18 there were $903 million in outstanding buy now pay later balances in Australia.

In the last two years the number of consumers who have used buy now pay later has increasd five-fold to two million, while in June this year there some 1.9 million transactions. A more worrying finding was that one in six users had either become overdrawn, delayed bill payments or borrowed additional money because of a buy now pay later arrangement.

"Although our review found many consumers enjoy using buy now pay later arrangements and plan to continue using them, there are some potential risks for consumers in using these products," says ASIC Commissioner Danielle Press.

"The typical buy now pay later consumer is young with 60% of buy now pay later users aged between 18 to 34 years old.  We found that buy now pay later arrangements can cause some consumers to become financially overcommitted and liable to paying late fees.

"The exponential growth in this industry, along with the risks we have identified, means this will remain an area of ongoing focus for ASIC. One area we will be targeting is where consumers are paying more than they need to for using a buy now pay later arrangement."

In response, ASIC has called for greater product intervention powers to all credit facilities regulated under the ASIC Act, providing a flexible tool kit to address emerging trends like buy now pay later arrangements. The commission believes this would allow for appropriate action where "significant consumer detriment" is identified.

Afterpay has further highlighted the steps taken to protect consumers; a process it claims is ongoing with continued improvements.

"We don't want people to be paying late fees and we don't want people to be committing more than they can repay," the group says.

"Independent research has shown that 93% of Afterpay orders incur no late fees and over 75% of customers have never incurred a late fee. Afterpay does not charge any other customer fees whatsoever and it is a free service for customers who pay on time.

"We have enhanced our processes, contract terms, capped late fees and introduced enhanced external ID verification checks. Further, Afterpay has worked with ASIC and consumer groups to enhance our financial hardship process.

"Afterpay already freezes a customer's account if they are late on even a single instalment payment. ASIC has acknowledged that this is an important consumer protection measure."

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Author: Matt Ogg

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