ASIC probes buy now, pay later schemes including Afterpay

ASIC probes buy now, pay later schemes including Afterpay

The corporate watchdog will look into any potential risks to shoppers from the boom in buy now, pay later platforms such as Afterpay, as consumer groups worry these services escape laws designed to protect customers.

With buy now, pay later platforms eyeing strong growth in the peak Christmas shopping period, the Australian Securities and Investments Com

mission (ASIC) on Friday confirmed it was closely watching the fast-growing sector.

Buy now, pay later schemes are like a modern form of lay-by for tech-savvy millennials, but with an important difference. Unlike lay-by, these services allow customers to take their goods home before they have paid for them, paying the merchant back over fortnightly instalments.

The largest provider, Afterpay, does not charge interest, so it is not covered by consumer credit laws. It makes about 80 per cent of its revenue from fees charged to merchants, and the remainder mainly from late payment fees, which are $10 per late payment and another $7 if the payment is not made within a week.

"ASIC is currently monitoring this industry and engaging with both industry participants and consumer groups," said ASIC's senior executive leader for deposit-takers, credit and insurers, Michael Saadat​.

"We plan to collect data from buy now, pay later providers in the first quarter of 2018 to determine the size and demographics of the industry and participants, as well as to identify any consumer harms."

It is expected the review will look at the proportion of consumers who miss repayments; and whether people are signing up to several buy now, pay later schemes at the same time.

Afterpay provides payment services for retailers including Cotton On and Sheridan and in recent months signed up with major merchants including Target and Jetstar.

Last month it said it had 1.1 million customers and was signing up more than 3000 new users a day. It expected to be available in more than 4000 shop fronts before Christmas.

While Afterpay says it encourages responsible behaviour by customers, a senior policy officer at the Consumer Law Action Centre, Katherine Temple, said such services were taking advantage of a "legal loophole".

"Our key concern is that the product is structured so that it's not subject to our national credit laws," she said.

This means it doesn't need to comply with responsible lending obligations, and it doesn't need to be a member of an external dispute resolution scheme - though Afterpay has joined one voluntarily.

"We just want to make sure that people don't end up with more credit than they can handle," Ms Temple said.

Afterpay has a maximum limit of $2000, and says this is only available to customers who have shown a repayment behaviour.

Three-quarters of Afterpay's customers are millennials, and its stock price has doubled since June, when it merged with Touch Group.

Yet shares in Afterpay Touch fell 5 per cent on Thursday, when The Australian Financial Review's reported unnamed sources saying ASIC would look at the industry.

The company said in a statement to the ASX it had already engaged with key regulators to establish "best practice" for the evolving industry.

"Afterpay is proud to have pioneered an innovative product which clearly fits within the regulatory framework and is designed to encourage responsible customer spending," it said.

Financial Rights Legal Centre spokesman Drew MacRae said the centre had not come across customers in difficulty solely from spending on Afterpay, but there were instances where this was one of many financial obligations.

The longer-term worry was that if there was no regulation of the sector, commercial pressures would result in competitors to Afterpay offering higher limits, or fewer protections for customers.

"We are concerned that in the future there will be other competitors or innovators in the space who will have higher limits that enable people to build up their debts quickly," Mr MacRae said.