BNPL – the ticking compliance time bomb

The BNPL industry is expected to reach US$ 3268.26 billion by 2030 [1], with a CAGR of 43.8 % from 2021 to 2030, and has no signs of slowing down. Global consumer groups have raised concerns demanding for the buy-now, pay-later (BNPL) industry to be regulated, citing that as the cost of living rises, more customers may become trapped in debt as they turn to BNPL services to help with increasing financial pressures. 

Despite the fact that BNPL services are known for their accessibility and flexibility, unregulated BNPL services can sometimes put consumers’ financial well-being and stability at risk. Choice, Financial Counselling Australia, and the Consumers’ Federation of Australia are among the alliance members that have issued a “global statement” outlining six fundamental prerequisites for effective BNPL regulation [2] . 

Australian outlooks and the need for stronger regulation

In Australia, the BNPL market was worth around $14.2 billion in the financial year ending 2021, according to UBS [3]. The BNPL boom has been spearheaded by Australia. According to the Reserve Bank of Australia, fintechs like Afterpay and Zip Co are the two biggest players domestically, with 6 million ‘active’ consumers in December 2020. By the middle of 2022 [4], the Australian federal government plans to create laws for BNPL and other payment systems. However, an election must be held before then.

According to Choice data, 30% of Australians have used BNPL services in the previous 12 months and one in every five people, or 21%, has used it for necessities like food and utilities.15% had skipped or been late on a payment, and 78% have faced financial hardship as a result, which may have included taking out a second loan or foregoing necessary things [5].

On the 1st of March 2021, the Australian Finance Industry Association (AFIA) announced that its Code of Practice for the BNPL sector had come into effect. The code sets best practice standards for the sector to strengthen consumer protections and states that assessments must be performed before a customer can make a purchase, as well as to conduct additional checks to assess affordability.

The Australian Financial Complaints Authority will manage BNPL disputes under the code, where an appointed committee will have the power to publicly denounce companies that provide loan services outside of the Code’s standards. However, this is still not enough to stop the wave of debt many fear will hit Australian shores. 

Why is the uptake of BNPL services concerning? 

These services look to be cost-effective, handy, and popular among young people.  The simplicity and flexibility that BNPL provides appear to be a perfect match for today’s consumers. BNPL’s “digital-first” interface and improved customer experience further set it apart from traditional payment options.

BNPL is also being more widely used to pay for necessities such as groceries, utilities, and child care.  Customers can receive goods and services upfront while paying for them over time using BNPL offerings. The majority of BNPL companies cover the cost of the purchase and demand the customer to pay in installments.

The BNPL companies often make money by charging businesses a fee for providing the service or by charging customers late fees when they miss a payment. As they do not charge interest on repayments, BNPL is not regulated under the National Credit Act due to a legal gap. Instead, BNPL adheres to an industry code of ethics which for many poses a serious risk. 

Preparation should be key 

One of the main issues with BNPL services is that they are perpetuating a cycle of debt for many, especially the younger consumers whilst normalising it. 

Many BNPL players claim that they are not selling credit, however, this is disputed by many. BNPL transactions, like all other forms of consumer borrowing, can have a negative impact on a buyer’s credit score in the future if they do not keep up with all scheduled repayments.

Most BNPL providers, on the other hand, are not bound by the same consumer protection rules as banks or other regulated lenders, which means they are exempt from regulators’ responsible lending duties.

Despite less stringent affordability checks, BNPL can have a long-term influence on a consumer’s credit history, and many people are unaware of the long-term consequences of utilising these services.

Several concerns have arisen as a result of the fact that many people who sign up for these services are unaware of or do not comprehend the consequences of missing a payment or the impact it might have on their credit score. 

What next?

Expect the expected – KYC processes and systems to be increased by all those in the sector. It is only a matter of time before some form of remediation is needed for a sector that many feels does not warrant longevity in current financial markets, and most certainly does not look out for the consumer. 

What’s missing is a regulated system that de-risks these services through CDD/KYC systems in order to future-proof them. Simply because someone does not have a complete credit history does not indicate that they should not be validated as a minimum threshold. It might be claimed that BNPL products should undergo more affordability testing to see whether consumers can or cannot afford to repay the monies in full.

Start planning now. 

The right people remain a vitally key component in your compliance function to ensure regulatory changes, challenges, and priorities are both met and adhered to. Automation of your current AML processes and systems can only take you so far – they need to be purposeful, and the right people will very much be needed to achieve this.

Ensuring that the skills and suitability of the individuals you retain are just as imperative, if not more so than the technology automation you implement. The human element is still the single most important element of your compliance function and regardless of what technological development or trend comes to play, this will always be true.

Ultimately, hiring the right talent should be at the forefront of ensuring your compliance team is as resilient and prepared as it can be.

If you require assistance in the form of additional resource for your compliance teams to try and keep up with new regulatory demands, contact us to see how we can help your planning, structuring, and onboarding of the right talent.


Works cited: 

[1]Research, P. (2022). Buy Now Pay Later Market Size to Hit US$ 3268.26 Bn by 2030. [online] GlobeNewswire News Room. Available at: [Accessed 12 May 2022].
[2]Research, P. (2022). Buy Now Pay Later Market Size to Hit US$ 3268.26 Bn by 2030. [online] GlobeNewswire News Room. Available at: [Accessed 12 May 2022].
[3]Whitson, R. (2022). ‘A downward debt spiral’: Global calls to rein in buy-now, pay-later companies. ABC News. [online] 16 Mar. Available at: [Accessed 12 May 2022].
[4] (2022). ShieldSquare Captcha. [online] Available at: [Accessed 13 May  2022]
[5]CHOICE. (2022). Global alliance calls for regulation of harmful buy now, pay later industry. [online] Available at: [Accessed 12 May 2022].