Buy now, pay later platforms expected to sign code of conduct to protect vulnerable customers

‘Buy now, pay later’ (BNPL) fintechs, like Afterpay and Zip Money are expected to sign a code of conduct to protect customers who use BNPL services. 

The code itself, which has been revealed by the Australian Finance Industry Association (AFIA), is said to be a ‘world-first’ that sets out the minimum standards BNPL companies must abide by. 

While it won’t be legally enforced, BNPL platform Zip Money co-founder, Peter Gray, told Business Insider Australia that the company is on board with the idea. 

“Zip welcomes this Code because it spells out minimum standards of how firms in the BNPL sector should conduct their business,” he said. 

“Zip will keep implementing its own more robust and consumer-focused standards – which include identity and credit checks – which [we] know delivers our customers better outcomes.”

One of the areas the code plans to tackle is late payment fees, either by capping, making them fairer or even waving them altogether if a customer is experiencing financial hardship. 

“This draft Code goes above and beyond existing laws by increasing safeguards for customers, including upfront assessment of customers to ensure the product will be suitable for them [and] product limitations to ensure customers don’t over-commit,” said AFIA CEO, Diana Tate. 

Afterpay already adopts this method and charges an initial $10 late payment fee, followed by a $7 fee is the installment still has not been paid 7 days after the due date. Purchases over $40 will have late payment fees capped at $68 or at 25% of the value of the purchase. 

Restricting BNPL services to those over 18 years of age is another area the code will address, as their popularity particularly among younger Australians continues to increase, as figures from Mozo’s recent neobanks report found that 45% of Aussies aged 25-34 and 34% of those aged between 1-24 engaged with a BNPL service.  

And according to Mozo research last year, 30% of Aussies (5.8 million) said they had a BNPL account and nearly half of those surveyed revealed that they had even ditched their credit card, thanks to the ease of paying in installments. 

Before taking on a new customer, BNPL companies who sign the code will be mandated to asses a customer’s level of financial vulnerability and only approve customers who will be able to meet repayments. 

Customers that appear to be a risk may be approved for lower spending limits and could be asked to pay the initial installment upfront. 

Finally, the code will address marketing tactics practised by BNPL companies. 

BNPL companies will no longer present customers in debt with marketing material that encourages them to spend more. 

These customers will also no longer be approved for future purchases and will be offered financial hardship assistance and may even have their late payment fees waived.

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