Frydenberg targets BNPL and cryptocurrency with payments regulation reform

Treasurer Josh Frydenberg is set to unveil plans to overhaul Australian payments regulation, with a focus on the buy now, pay later (BNPL) and cryptocurrency sectors.

He will also float the idea of introducing a central bank digital currency for Australia.

Speaking at the Australia-Israel Chamber of Commerce, Frydenberg will promise to modernise payments regulation and oversight in order to keep pace with technology, and to better protect consumers.

The changes represent “the most significant reforms to our payments system in 25 years”, the Treasurer will say, and will prevent rules being dictated by big tech and foreign governments.

“It is how we will capitalise on the opportunity for Australia to lead the world in this emerging and fast-growing area which has almost endless potential applications.”

The government will introduce powers allowing the Treasurer to direct payment policy in real time, addressing any emerging and future gaps in the regulatory network.

The current ‘one-size-fits-all’ payments system regulatory framework will also likely be replaced with a ‘functionally based’ framework with graduated and risk-based regulatory requirements.

Reforms are expected to be rolled out in two phases over the next 12 months, with the most urgent changes to be consulted on in the first half of 2022.

Shaking up digital wallets and BNPL

Among the priority areas are digital wallets and BNPL. The government will consult on ‘appropriate treatment’ for these services while still promoting competition and innovation.

These services are generally provided by big tech players such as Afterpay and Apple, and currently fall outside of payments regulation.

While some players in the BNPL sector have signed up to a voluntary code of practice, this did not address controversial ‘no-surcharge’ rules, which prevent merchants from passing BNPL fees on to customers.

There are also questions around whether BNPL players are lending responsibly. A report from Financial Counselling Australia this week found that the number of consumers seeking counselling who have BNPL debt is on the rise.

Of all financial counselors surveyed, 84% said at least half of their customers have BNPL debt, compared to 31% 12 months ago.

Almost half of the counselors (46%) said ‘most’ of their clients have BNPL debt.

Crypto reform on the way

Proposed reforms around cryptocurrency will follow some of the recommendations from the report recently tabled by Senator Andrew Bragg, which called for more clarity around regulation and tax of crypto assets.

Establishing a regulatory framework for digital assets “will give consumers greater confidence” Frydenberg will say.

The government will establish a licensing framework for digital currency exchanges, as well as a custody regulation regime for businesses holding crypto assets on behalf of consumers.

The board of taxation will also advise on a policy for taxation of digital transactions and assets.

The government is even set to ‘commence consultation on the feasibility’ of a central bank digital currency. Advice on this is expected to be provided before the end of 2022.

Is Frydenberg holding back innovation?

The reforms will give the government greater powers to intervene when new tech enters the markets.

But freedom from tight financial services regulations has been hailed as something that has allowed the Aussie fintech sector — and particularly BNPL — to flourish.

Frydenberg is expected to argue that the changes will be in the best interests of both businesses and consumers.

For businesses, he will say the reforms “address the ambiguity that can exist” when it comes to regulatory and tax treatment of new payment methods and crypto assets.

“In doing so, it will drive even more consumer interest, facilitate even more new entrants and enable even more innovation to take place.”