What FinTechs need to know about the upcoming Buy Now Pay Later regulations
By Michael Blyth (pictured), General Manager – Policy & Advocacy for Arca
The countdown is on. On 10 June this year, the new Buy Now Pay Later (BNPL) legislation will take effect, bringing significant regulatory changes that FinTech companies must prepare for. These reforms will align BNPL providers with the same general obligations that apply to banks and other lenders, meaning compliance is not just a legal necessity but also crucial for maintaining customer trust and operational stability.
The upcoming regulations introduce several new responsibilities for BNPL providers, including licensing by ASIC and stricter credit reporting obligations. These changes are designed to enhance consumer protection and ensure responsible lending practices.
Over the next few months, FinTechs operating in the BNPL space will face a series of challenges that need to be addressed urgently. Here’s what all companies can do to navigate these hurdles in time for the deadline:
- Credit reporting obligations
One of the most significant changes for BNPL providers offering facilities over $2,000 is the requirement to participate in credit reporting at the ‘partial’ level (if they want to take advantage of the special ‘modified’ responsible lending obligations). To comply, they must sign the Principles of Reciprocity and Data Exchange (PRDE), which governs industry data sharing.
BNPL providers will also need to start using credit reporting information to assess a customer’s financial position more thoroughly. This means engaging with credit reporting bodies (CRBs) as soon as possible to ensure systems are in place to manage this data effectively.
With these changing obligations in mind, FinTechs have two options: meet the bare minimum of participation, which is participating at ‘negative’ for accounts $2000 and below and ‘partial’ for accounts over $2000 – or commit to a more comprehensive approach to credit reporting.
Arca strongly encourages the latter, recommending that FinTechs familiarise themselves with the benefits of participating in comprehensive credit reporting (CCR). This approach provides a much clearer picture of a customer’s creditworthiness, using repayment history information from other credit products to assess risk more accurately. While partial reporting meets the bare minimum requirements, FinTechs should be aiming for full compliance to stay ahead of future regulatory expectations.
- Customer education and communication
Another key challenge BNPL providers will face is ensuring customers understand the impact of BNPL on their financial health. Many consumers still do not realise that BNPL is a form of credit, and therefore, their borrowing behaviour can affect their credit history.
In the same way that banks and other lenders do, BNPL providers must take proactive steps to educate their customers on responsible usage. This includes:
- Avoiding excessive borrowing
- Repaying on time to maintain a positive credit history
- Seeking support from lenders if they experience financial hardship
CreditSmart, an industry initiative, provides valuable resources to help consumers navigate credit responsibly. To ensure customers are empowered by their BNPL provider to use its service responsibly, FinTechs should consider incorporating trusted educational tools and resources into their customer communications.
- Handling hardship and default reporting
Starting 10 June, FinTechs must also align themselves with the industry’s hardship requirements. This means establishing clear processes for managing customers who are struggling to meet repayments, ensuring compliance with the Credit Code obligations and ASIC’s expectations. In addition, as a signatory to the PRDE, the BNPL provider will need to have processes to report defaults for accounts that go significantly overdue.
This could be a significant operational challenge for companies without existing systems in place, given that the deadline is a few months away. Preparing for your obligations around financial hardship is essential for both compliance purposes and to protect financially vulnerable customers. Any company that believes it may not be ready in time is encouraged to contact Arca as soon as possible to explore whether transitional relief is available.
Why BNPL providers must act now
For FinTechs who wish to continue their operations without interruption, the upcoming BNPL regulations leave little room for delay. Compliance with these regulations is not just a matter of ticking a legal box – it’s about building sustainable, responsible lending practices that benefit both businesses and consumers. Failure to prepare could lead to operational disruptions, potential penalties, and damage to customer trust.
To stay ahead, BNPL providers should:
- Engage with credit reporting bodies immediately
- Determine whether to limit BNPL offerings to $2,000 or commit to comprehensive credit reporting
- Develop clear communication strategies to educate customers about responsible BNPL use
- Establish robust processes for hardship management and default reporting
FinTechs that delay preparations until late April or beyond may struggle to implement the necessary changes in time. Arca is actively consulting on the BNPL legislation and plays a key role in ensuring its members comply with the new regulations. With deep industry expertise and oversight of the PRDE data standards, Arca is well-positioned to help FinTechs navigate these changes effectively.
