Afterpay and Zip have welcomed a massive shake-up of payment regulation, as the government zeroes in on buy now, pay later

Afterpay and Zip have welcomed a massive shake-up of payment regulation, as the government zeroes in on buy now, pay later
Block's acquisition of Afterpay has been given the all-clear by the Bank of Spain, closing the book on Australia's largest ever merger deal. Photo: Getty Images
  • Buy now, pay later giants Afterpay and Zip say they will consult with the government over payment regulation reforms.
  • Treasurer Josh Frydenberg on Wednesday announced a policy overhaul to accommodate the digital payment revolution.
  • Both firms have welcomed the move, but they’ll need to work to secure comfortable placing under the new rules.
  • Visit Business Insider Australia’s homepage for more stories.

Buy now, pay later giants Afterpay and Zip have embraced a proposed overhaul of Australia’s payment systems regulation, saying they will work with the government to update legislation struggling to keep up with the digital payment revolution.

On Wednesday, Treasurer Josh Frydenberg announced plans to overhaul the rules around cryptocurrencies, digital wallets, and BNPL providers, all of which operate largely outside of government regulation.

Those changes will “address the ambiguity that can exist about the regulatory and tax treatment” of digital payment platforms, Frydenberg said.

The planned shake-up will also put power back in the government’s hands, Frydenberg added, instead of letting tech juggernauts dictate the direction of billions of dollars in daily payments.

“If we do not reform the current framework it will be Silicon Valley that determines the future of our payments system,” the Treasurer said.

But the government won’t just look at Californian firms like Apple and Google, whose digital wallets are set for considerable scrutiny.

The Treasury also intends to rework the rules around Australia’s own Afterpay and Zip, and other BNPL providers, given they do not currently come under the Payment System Regulation Act as designated payment systems.

The government’s position: Allowing BNPL services to operate outside of the Act makes it difficult for regulators and the Reserve Bank of Australia to oversee how fees are meted out, or to promote competition.

But the government says it will abandon a one-size-fits-all approach to the Act, and will consult with relevant parties over the next year to cook up a better system.

“Afterpay welcomes recognition from the government that a more holistic approach needs to be taken in relation to payments policy,” an Afterpay spokesperson told Business Insider Australia.

The company looks forward to the government and Treasury “taking a greater role in payments policy”, they added, noting that Afterpay looks forward to “participating in the consultation process”.

“Zip will work with the government in every way it can to improve the regulatory framework and ensure any changes bolster competition and innovation while also protecting consumers,” said Matthew Abbott, Zip’s director of corporate affairs.

Buy now, pay later, regulate whenever

Although both firms have offered to assist in those consultations, BNPL providers have long been cautious about being listed under the Act.

Frydenberg’s plan to rework the treatment of BNPL providers is partially based on recommendations from the Treasury’s recent Payments System Review, led by payments expert Scott Farrell.

In a February submission to the so-called ‘Farrell review’, Afterpay co-founder Anthony Eisen said the company was not just as payment provider, but was “predominantly a budgeting and marketing platform which includes other services”.

In future consultations, Afterpay will need to express how that pay-in-four mechanism is not the company’s be-all and end-all, if it wants to secure a comfortable spot under the updated Act.

Given the fact the government wants to wrest some control away from enormous fintechs, it is likely the company will also downplay its operational ties to Square, the payment system provider and decentralised finance titan poised to acquire Afterpay in a deal worth some $54 billion.

In its own February 2020 submission to the Reserve Bank of Australia’s retail payments regulation submission paper, Zip also declared some meddling is unwarranted.

“To regulate or intervene in the commercial relationship of the BNPL provider and merchant, without demonstrated cause, would be premature and detrimental,” Zip co-founder Peter Gray said at the time.

While the process is likely to focus on those merchant fees and competition, such high-level scrutiny is likely to draw attention to the sector’s other regulatory hangups.

Financial Counselling Australia this week called for a review of credit law as it pertains to BNPL firms, as the industry is also free of the regulation facing traditional lenders.

The number of clients presenting with BNPL debt has exploded over the last year, the organisation said, meaning the government should work towards a “fit-for-purpose regulatory response”.

Afterpay has consistently defended its product as safer than credit cards, and Zip’s Gray said his own company “welcomes scrutiny”.

“Over the past two years we have had a handful of inquiries and all have shown BNPL is being widely embraced but without widespread consumer harm,” he added.

The government’s most pressing reforms will be consulted on in the first half of 2022, with the rest sorted by the year’s end.