Wednesday 23 January 2019
Buy now, pay later (BNPL) service Zip has described the current credit card model as ‘outdated’ compared to BNPL products such as their own, which they argue offer a ‘fairer’ payment alternative for Australian consumers.
The comments from Zip CEO and Co-Founder, Larry Diamond, came amid a call for new regulations on the BNPL industry from the company, including conducting more stringent financial checks on customers and providing greater product transparency.
“When correctly regulated, BNPL products offer a powerful tool for consumers to take control of their finances,” said Mr Diamond.
“Compared to the outdated credit card model, these products provide a better, fairer alternative with simpler product constructs, interest-free terms, lower fees and faster repayment times.”
Among the other recommendations proposed, the fintech has advocated that all buy now, pay later lenders:
Verify customer income and ensure that now more than 10% of their customers post-tax income is directed to repayment commitments
Ensure that repayments are made with a bank account and not a credit card
Cap late fees to either $10 per month or 10% of the aggregate monthly repayment due (whichever figure is lowest)
The statement and recommendations from Zip come against the backdrop of the Federal Government's Senate inquiry into ‘Credit and financial services targeted at Australians at risk of financial hardship’.
The inquiry, which is looking at buy now, pay later services like Zip and Afterpay, as well as payday lenders and debt management firms, conducted its first day of public hearings in Brisbane on Tuesday at which Zip aired its support for greater regulation in the sector and for ASIC’s call for BNPL lending to be classed as a form of credit.
“We wholeheartedly support ASIC’s position that BNPL is a form of credit and should be labelled as credit, and when it comes to the BNPL product design, every credit provider should make sure customers can afford repayments,” said Diamond.
“We believe BNPL providers must recognise the responsibility that comes with issuing credit, the importance of ensuring products are appropriate to a consumer’s circumstances and that safeguards are in place should a consumer’s financial situation change.”
The stance from Zip differs from their major competitor in the sector, Afterpay, whose CEO Nick Molnar maintained that the company was not a credit provider.
"We are not a traditional credit product or a payday lender or quite honestly, like some others in the buy now, pay later industry," Molnar was quoted as saying by the Australian Financial Review.
"Afterpay was established to be a free service and we are very proud to say we only make 20% of our revenue from the customer. The opposite is true for traditional credit products and, unfortunately, some [buy now pay later] services built on the foundation of traditional credit models. These products make upwards of 60% of their revenue from the customer."
Interested in learning more about buy now, pay later services? Get up to scratch with our guides on Zip and Afterpay, or keep up to date with the latest in the world of banking, finance and technology at the Mozo fintech hub.