WELLINGTON (CU)_ Over half a decade ago a new way to pay, called buy now, pay later (BNPL), swept the eCommerce sector across Europe, North America and Australia. This system of settling payments for products such as clothing, footwear and even furniture, became even more popular among over the past year, as consumers were pushed towards online shopping amid the COVID-19 pandemic.
However, this trend, which involves minimal credit checks and little to no interest, has now become the fastest-growing form of debt in New Zealand. Therefore, the government is looking at the possibility of regulating BNPL lenders ahead of the holiday season, when the latest credit industry is expected to see a massive rise in demand from shoppers.
Recent figures show that nearly 600,000​consumers in the island nation have one of more BNPL accounts, as these loans become a growing feature in the debt problems of some the country’s most vulnerable families.
According to the Ministry of Business, Innovation and Employment (MBIE), although a minority of customers struggle to make repayments on BNPL deals on time, the industry continues to represent a larger proportion of consumers missing payments on these deals, compared with other forms of credit. Following a survey conducted on 35 to 40 ​per cent of the buy now, pay later market, 8.3​ per cent of active customers had missed or delayed their payments in August, in comparison to 7.9​ per cent in personal loans and 4.2 per cent in credit cards that month.
The MBIE noted that there were three possible approaches that may be followed in regulating the sector. The first would involve leaving the BNPL industry outside the realm of responsible lending laws covering other lenders, thereby allowing the industry to develop its own code of standards. The second would be bring these lenders under the same lending laws covering banks, finance companies and other lenders. The third is to have the industry develop a code which will be approved and monitored by the MBIE.
In the United Kingdom, the government has announced plans for the BNPL industry to be regulated by the Financial Conduct Authority (FCA), which would mean that firms will be required to conduct proper affordability checks before lending to consumers, while it also gives customers the right to complain to the Financial Ombudsman Service, if they are unhappy about the way a BNPL firm has treated them.
The announcement came during a time when the new form of credit became increasingly popular among shoppers with tight finances, who eventually ended up accumulating significant outstanding balances under these deals. According to financial website Credit Karma, by the end of October, UK shoppers had racked up more than £4 billion (US$5.3 billion) in outstanding debt since the beginning of this year, with each user’s outstanding balance averaging £538.
