Response to the AFIA Code of Practice for Buy Now, Pay Later providers

March 2020: This is a response to the consultation on the draft AFIA Code of Practice for buy now, pay later (BNPL) providers. In this submission, we outline some of the findings from our consumer research on the use of BNPL services in Australia and share some high-level views on the BNPL industry and the newly proposed AFIA Code of Practice. Visit our government submissions hub for more Finder submissions to government consultations and inquiries.

Finder consumer research on BNPL services

Every month, our Finder Consumer Sentiment Tracker tracks consumer sentiment in Australia. From this nationally representative study, we have a number of learnings about the way BNPL services are used. These figures are now based on over 10,000 responses from Australians in the last 10 months, and so are highly relevant. We have outlined some of the key findings below:

• Around a third of Australians are using BNPL services, and a notable proportion are doing so on a very regular basis. Finder's research shows that in the last 6 months:
  • 32% of Australians have used BNPL services at least once.
  • 15% of Australians have used BNPL service 5 times or more.
  • 5% of Australians have used BNPL services 10 times or more.
• There is a clear generational gap between users of these services. Younger generations are far more likely to be using BNPL than older generations. Interestingly, generation Y seems to be the generation with the highest usage:
  • 10% of baby boomers have used BNPL services at least once.
  • 27% of generation X have used BNPL services at least once
  • 48% of generation Y have used BNPL services at least once.
  • 46% of generation Z have used BNPL services at least once.
• The vast majority of BNPL users have not paid a late fee, but the proportion that has paid a late fee increases the more often these services are used. Finder's research shows that in the last 12 months:
  • 15% of Australian BNPL users have paid a late payment fee.
  • 17% of Australians who have used BNPL services 5 times or more in the last 6 months have paid a late payment fee.
  • 25% of Australians who have used BNPL services 10 times or more in the last 6 months have paid a late payment fee.
• Younger users are more likely to have paid late fees than older users:
  • Nearly 1 in 4 (24%) of generation Z BNPL users have paid a late fee.
  • This compares to just 3% of baby boomer BNPL users that have paid a late fee.

Position on BNPL services and the proposed Code of Practice

Finder has a whole section of our site focused on helping consumers understand their options in the BNPL space. This includes comprehensive reviews for the major providers in the Australian market, which outline the relative pros and cons of each alongside regularly updated lists and tables that show where each option can be used.

Based on our analysis to date, we believe that BNPL services do have a role to play in the Australian economy when used responsibly. In our view they can be a lower risk method of borrowing than some other forms of credit, particularly as many of the major BNPL providers cap their late fees in a way that minimises the possible downside of money borrowed. As long as there is clear demand for BNPL services, we will continue to undertake analysis on this topic to help consumers navigate this space and make better financial decisions.

Further to this, Finder is supportive of introducing a Code of Practice for BNPL providers and we believe that the draft that has been shared covers many of the key issues. We are pleased to see a rule about late fees being "fair, reasonable and capped" included. We do think that a clearer definition of what this means could help to avoid any confusion. Afterpay's rule that the total of the late fees that may be applied are capped at whichever is less out of 25% of the original order value or $68 provides clearer guidance to a consumer about the risk they are taking. Similarly, Brighte, which typically offers higher sums of money through its BNPL service that pays for home improvements like solar panel installations (minimum finance amount of $1,000) also caps its late fees at $49.90 per calendar year.

As this appears to be a common practice in the industry already, we would welcome a move to formally include a statement in the Code of Practice that caps late fees at a set percentage level of the amount borrowed with an upper limit per calendar year set as a dollar value.

We also welcome the higher standards that are proposed for checking the suitability of a BNPL service for a customer before it is offered to them. Finder's consumer research shows that the proportion of customers that pays late fees significantly increases when the customers are using BNPL services more than once in a 6 month period. As a result, we would recommend that external sources of information that show whether a consumer is using other BNPL providers should be included in this decision making process. If this information is not readily available, then BNPL providers that sign up to the Code of Practice could look to create a process for sharing this information between each other in a secure way. In the future, the Consumer Data Right might be a helpful framework for allowing this data sharing to occur.

Overall, we welcome the AFIA Code of Practice for BNPL providers and applaud the providers that have worked on it for taking a proactive approach to increasing consumer protections in this industry. We are of the opinion that introducing this Code of Practice will be the first step in an evolving regulatory landscape for this type of lending and we will aim to participate in any further consultation on this topic going forwards.