Australian Buy Now Pay Later businesses discuss the utility of Open Banking Regime

Jim Bulling, Felix Charlesworth, Edwin Tan

On 22 January 2018, two of the largest ‘buy now, pay later’ businesses in Australia, Afterpay and Zip.co, appeared at a hearing before the Senate’s Economic References Committee.

During the Senate hearing, both Zip.co and Afterpay presented how their respective business models operate and responded to questions about how the ‘buy now, pay later’ industry should be regulated. As previously mentioned, ‘buy now, pay later’ businesses are not currently classified as ‘credit providers’ under the National Credit Code (Code) and, as such, are not subject to the responsible lending obligations under the Code.

While Zip.co stated they already complied with responsible lending obligations, Afterpay argued that it should not be regulated under the Code. Mr Eisen of Afterpay claimed that given its average transaction is $130, to trawl through customers’ bank account details,employment history and other aspects which are required within the policies and procedures of the Code is probably disproportionate.

In responding to Senator Hume’s question as to how Open Banking regime may affect its business model, Mr Eisen remarked that the regime could enable Afterpay to make more fully informed credit approval decisions. In particular, Mr Eisen noted that the forthcoming availability and proliferation of banking and transaction data under the regime could allow for businesses such as Afterpay to apply this data as a means of maintaining the lowest possible default rates and protecting customers and without being required to strictly adhere to the Code which may be more appropriate for more traditional credit providers.

While not going as far as Mr Eisen in promoting the capabilities of Open Banking, Zip.co also agreed that the Open Banking regime, which commences from 1 July 2019 onward, will make consumer banking and transactional data more accessible for credit providers.