BNPL code of practice to come into effect next week, in a win for self-regulation

A long-awaited buy-now, pay-later code of practice is set to come into effect on Monday, March 1, and is expected to include provisions for an independent committee with powers to name and shame bad actors in the space.

The code was drawn up by the Australian Finance Industry Association (AFIA) and a group of its members in the BNPL space.

They included the well-known consumer favourites such as Afterpay and Zip Co, as well as bigger-ticket players such as Payright and energy installation specialist Brighte.

Klarna, a European business that entered the Australian market last year has also contributed to drawing up the code, along with Flexigroup, Latitude and OpenPay.

Final details are expected to be released later this week, but according to a report in the Australian Financial Review, the code will bring in a requirement for credit checks for transactions over $2,000.

Those checks, however, can be conducted via providers’ own systems, with no requirement to use external data.

The code is expected to prevent providers from offering BNPL products to minors, and will mandate anti-money laundering identity checks.

Providers will have to ensure a customers can make the first payment upfront, and cannot offer additional purchases if a customer is late on repayments.

An independent committee is also expected to be formed, which will be able to name and shame those not abiding by the code of practice, and order compensation to be paid to customers.

Speaking to SmartCompany, FinTech Australia chief executive Rebecca Schot-Guppy calls the code “an excellent example of self-regulation”, suggesting that’s something we will need to see more of going forward.

As technology companies continue to grow, “we can’t expect legislators to create laws at a pace that’s keeping up”, she explains.

Any new laws have to consider all implications for all stakeholders. If they’re rushed, there’s a risk of hurting the very consumers they’re designed to protect, or stifling the type of innovation that drives competition.

Codes of practice like this one, drawn up through consultation with both the tech companies and regulators, provide an effective framework in the meantime, she suggests, even if the major players such as Zip and Afterpay already adhere to all the guidelines already.

Indeed, this code is not only about self-regulation for the large and well-known names in the Aussie BNPL sector, it’s about ensuring the new entrants stay in line too.

“The aim of this exercise is to create a baseline for the entire sector to follow and ensure that any newer operators do not burn trust with consumers, which in turn affects the entire sector,” Schot-Guppy says.

The code is a response to the Australian Securities and Investments Commission (ASIC) review of the BNPL sector, and a subsequent enquiry conducted by the Senate Economics Reference Committee.

It comes into play at a time when this sector is going gangbusters. The COVID-19 pandemic saw Afterpay and Zip’s share prices skyrocket, as more people turned to online shopping and embraced fintech payment options.

At the same time, we’ve seen a swathe of new entrants in the space, and varying ways of approaching the model.

Limepay, for example, offers a white-label product allowing businesses to offer BNPL through their own platforms. Beforepay allows people to access their wages before payday, and Butn offers advance invoice payments for SMEs, including contractors, sole traders and food delivery drivers.

However, this activity has also drawn closer scrutiny, with critics questioning whether these platforms are acting with consumers’ best interests at heart.

A report from ASIC in November last year found 21% of users had missed BNPL payments in the previous 12 months. One in five said they had cut back on, or gone without, essentials — including meals — in order to make payments on time.