Already and this is the Daily OFF.
This is the Daily OS.
Oh now it makes sense. Good morning and welcome to the Daily OS. It is Thursday, the sixth of June.
I'm Billy, I'm Sam.
Over seven million Australians used by now Pay Later accounts like after Pay or ZIP and young people are the main adopters of this new form of credit. But now the government is keen to apply the same rules that govern our credit cards or loans to these services in one of the biggest changes to the Credit Act in years. The government hopes the new laws will protect vulnerable people from accumulating debt by making everyone get a credit check
to use the apps. And on today's podcast, we're going to take a look at what's being proposed, why and what the companies themselves think of the move. But first Sam, what is making headlines.
Australia's economy grew by zero point one percent over the past three months. That's according to the latest figures from the Australian Bureau of Statistics. This is measured using a metric known as gross domestic product or GDP, which reflects
the value of all goods and services in Australia. Reserve Bank Governor Michelle Bullock called the growth figures quote very weak, and Treasurer Jim Chalmers said it reflected the immense pressure placed on households due to high inflation and interest rates. Shadow Treasurer Angus Taylor blamed slow GDP on the government, who he claimed, quote had no economic vision for the country.
Head of NewsCorp Australasia, Michael Miller, has proposed a new legal framework for social media companies, requiring them to apply for and pay for a social license, which will essentially
be permission to operate in Australia. In an address to the National Press Club, Miller outlined the proposed laws, under which companies would be directly liable for all the content on their platforms, have to contribute to mental health funding, maintain a dedicated complaints hotline in Australia, and face criminal pennses for breaking social license rules.
Several high profile TikTok accounts have been targeted in a cyber attack, including US news network CNN and Paris Hilton. A TikTok spokesperson told The Associated Press that a quote very small number of accounts were impacted by the cyber attack, and that Hilton's account was targeted but not compromised. It comes after the US government passed a bill to force TikTok's Chinese parent company Byteedance to sell it to a
US buyer or face being shut down over concerns. User data is being shared with the Chinese government.
And today's good News, Bluey will feature on a limited run of Australian one dollar coins made by their Royal Australian Mint. Characters from the iconic children's TV show an ABC and BBC co production will appear on three different commemorative coins as part of the Bluey dollar Bucks series. Interestingly, despite being the one dollar coin, the coins will cost twenty dollars for one or fifty five dollars for all three.
Okay, So, on today's podcast, we're going to talk about changes to the buy now, pay later sector. So think of companies like after pay and Zip. And given the status of how popular this service is for young people, and given who listens to this podcast typically, I'm sure that people listening know exactly what this is, but I want you to give us a quick overview anyway. What is buy now pay later?
So buy now, pay later is a financing option that allows customers to pay for items in multiple installments rather than upfront. So it basically means that you can pay partly for something, but you can get that item straight away. So let's say that there's a dress, for example, that I want to wear this weekend, but it's way out
of my price range. So I can pay for a quarter of it now, and then I can wear that dress this weekend and then pay off the rest of the dress in quarterly installments over the next four weeks following.
Yeah, and there's no interest normally. Are those payments right exactly?
And that's a key benefit to this that there is no financial penalty for paying for it over time. It's completely free of charge, unless you don't pay it back in time, then there is a fee, and that can result in a debt. But I guess when you think about loans, you think of the interest that comes from that. This is not like that because there's no interest there. So it is really popular for that reason, especially amongst young people.
It's interesting looking at these companies because you know they make billions of dollars where that money actually comes from, especially because they're giving customers interest free loans essentially. And the answer to that is predominantly that they charge merchants and merchants. So let's take your dress for an example. The merchant could be the Iconic, and so they'll convince the iconic to take them on as an offering to
their customers. They'll pay a fee on either the number of transactions or maybe even a monthly installment, and the Iconic should see their sales go up because they offer after pay ors. Yes, and so that's the business case they're putting forward.
Yes, So they're basically saying to their konic, you will have more customers because it is more attractive for customers to use after.
Pay exact there are, and you should make that money back. So who then is the customer that's using band pl.
So according to Australia's Reserve Bank, about seven million Australians have used buy Now, Pay later to purchase something.
It's a massive group of people, it's massive.
That's about one in three of the adult population in Australia and about half of the employed population. So it's a significant proportion of Australians that we're talking about here. And in terms of who these Australians are, it's Australians between eighteen and thirty nine, who have on average just under one buy Now Pay Later account each, although to note, there's some people in this age bracket have multiple accounts and will explain why a little bit later, but that's
why that number sounds really high. And in terms of those who are a bit older, those over sixty five are the least likely demographic to have an account, So this is really young people who are using this service.
And do we have any other inside about what kind of financial habits an average B and PEL holder has.
Yeah, Well, interestingly, there's some other research from the Reserve Bank of Australia that shows that if you have a buy Now Pay Later account, you're less likely to have a credit card than someone who doesn't have a buy and Now Pay Later account. So according to the RBA, this reflects that some customers who might not be eligible for a credit card might actually be using a buy Now Pay Later account instead.
And I'm interested to tease that out a little bit more with you when we get to what the government has proposed, because that's kind of one of these key points of tension.
Yeah, so we'll come back to that. But one more thing that I want to add is that a twenty twenty two survey by Monash University found that those experiencing financial stress are seventy five percent more likely to use buying our pay Later systems. So it's particularly used by Australians who are experiencing financial stress.
Okay, And the remarkable thing about this financial product is that it's kind of come from nowhere. I mean, this is quite new on the scene. When did it kind of burst into everyone's financial planning.
Yeah, it has become very popular in the last decade or so, but especially during the pandemic, which is quite interesting, I think so. Just in twenty twenty, again, according to the Reserve Bank, by Now Pay Later services grew by over fifty percent in the second half of twenty twenty compared to the same period a year earlier. That is a huge growth in this industry. And in the last financial year the value of buy now, Pay Later transactions was about nineteen billion dollars.
And I think if you're a regular listener to this podcast, there's this theme that emerges, whether we're talking about buy Now, Pay Later, or AI or other kind of emerging areas of tech, especially that the law takes a little bit of time to catch up, and you know, there's this sense of the law as always a few years behind, and they're constantly doing reports, investigations, and now they have actually come out with a position on how by now pay later should be policed, right.
Yeah, and the government says that in this policy, they say that the growth of a buy now, pay later sector was not contemplated by policymakers who were drafting our credit legislation.
So that's the legislation that governs things like a credit card, and there's quite strict regulations around that. I mean, it's not an uncommon experience to be rejected from a credit card application, for example. So now let's get to the BNPL legislation. What does it look like.
So, like we said, buy now, Pay later is not right now regulated under the same frameworks as credit card companies, and they actually fall under the exemption part of the Australian Credit Act. And this has made it easier for consumers to use buy now, Pay later because it doesn't require the same approval as credit cards or loans which
check a person's credit history. So basically the Credit Act is designed to make sure that someone is in the right financial position to use a credit card, and that is not a requirement for Buy now Pay Latter services got it and so policy makers have identified a few key concerns here, including excessive late payment fees and lack
of warnings about using the services. And basically, as we mentioned above, people experiencing financial stress are the most likely to use buy now, Pay Later, and that is an area that the government wants to help solve.
Got it.
And we mentioned before that some people have multiple accounts. Yeah, one reason for why that could happen is if you get banned from one account because you've accumulated too much debt, and then you just open another account with another provider, and again you can accumulate too much debt there, and then you just keep going from provider to provider, and at the moment, there is no law that stops that from happening.
Right. That's a really interesting point because these services are designed, and this is what they'll tell you. They're designed to make sure that you don't go into too much debt. They'll kind of cut you off if they can see that you're an unreliable person to pay it back. But there's nothing stopping you from going to a couple and all of a sudden that debt does become overwhelming exactly, So what's the government doing or what's the government proposed rather to actually do about all of this.
So it's proposing to take buy now, pay later schemes out of the exemption list under the Credit Act, meaning it will be regulated under the same laws as credit cards. So under the bill introduced yesterday, buy now Pay Later providers would need to have an Australian credit license and would be subject to, like I said, the existing credit card laws, which is regulated by the Australian Securities and
Investments Commission. Now, what does this mean for consumers for the people listening, So it means that by now pay later providers could need to check a person's credit score and also assess whether a person is financially suitable to pay back the credit that they're accumulating. And basically what the government is saying is that they are trying to protect financially vulnerable consumers from accumulating debt.
There's actually a really interesting example just over the ditch in New Zealand where they've introduced similar legislation. They've kind of said, if you're going to operate by now pay later services in the country, you all have to follow the same rule, and it kind of sounds like that's what's happening here as well. What has the government said about why this is so important?
So Assistant treasure Stephen Jones, who is the person who has introduced this to Parliament, basically said, like I said before, this is all about making the market a safer place. Here's what he said on the ABC yesterday.
We want to ensure that those consumer protections that we think are necessary for credit products apply to the buy and ow pay later sector. And when we put in place to these new laws, that's exactly what will happen. It'll ensure that we maintain the great innovation and competition that the buy and our pay later sector is introduced into credit markets, but the same consumer protections will be in place as well.
And also just a quick note that TDA did reach out to the opposition for comment, but we didn't receive a response at the time of recording this episode.
And as with any story that we try and do on this podcast, I do think it's important to explore some of the balance in this and hear from the buy now payload companies themselves. Have they come out statements since all of this has been released, and what's their position on their role in consumers' lives.
Yeah, so, unsurprisingly there's quite a different story from after Pay, which we've mentioned, and they're one of the major buying now, pay later companies, so they've told a really different story on the role they play in consumers' lives. They released some of their internal research yesterday that showed that one in three after pay users cited improvements in their financial management while using the service, and they say that twenty
five percent said it allowed them to save more. So they're basically saying that they're actually helping people financially, not disadvantaging them. Further, Okay, and in terms of the company's response to the government's proposal, when this legislation was in an earlier draft phase, they submitted some feedback and they said that they should only have to conduct partial credit checks.
But also importantly they did acknowledge concerns that this could allow consumers to hide debts with other providers.
And so a partial credit check could look like no touching base with one particular government agency to see if you have a debt there or or you know, it could be like if you've got unpaid for parking fine or something. Yeah, it's not a full credit check that's being proposed by the legislation, which would be as if you're applying for a credit card, do you have any other loans? How are you going with your mortgage, how are you going with your hex? All that kind of stuff.
And one more response that I think is worth mentioning is from ZIP, who are one of the other big buy now, pay later companies. They also responded to the government's proposal saying they already hold a credit license and they also already conduct checks on customers they claim. They also told the ABC quote, we are supportive of the government holding all providers in the sector to the same minimum standard.
Okay, so they're taking more of a kind of New Zealand esque approach to how they want to operate within the environment. It's really interesting that even within the buy now, pay later sector, there's a diversity of opinions. And that's
not unlike any real industry. I mean, there's always going to be differing ways to do this, but it's going to be interesting to see what happens here because I mean, these are not traditional conventional credit products, as the legislation understands it, and so the law is trying to change to meet the times, and you know it will impact millions of people who currently use these services every day.
I think we'll leave the conversation there though. Thanks for joining us Billy to explain that, and thank you for listening to The Daily Oz. We'll be back again in your ears tomorrow morning. If you enjoy that episode, drop us a note in a comments tell us your experience with buy Now, Pay Later. I think it's a really valuable story for us all to engage in. Thank you
so much. We'll speak to you again tomorrow. My name is Lily Maddon and I'm a proud Arunda Bunjelung Calcuttin woman from Gadighl country.
The Daily oz acknowledges that this podcast is recorded on the lands of the Gadighl people and pays respect to all Aboriginal and Torrestrate island and nations. We pay our respects to the first peoples of these countries, both past and present.