2GB MONEY NEWS
WEDNESDAY, 24 NOVEMBER 2021
SUBJECT: Buy Now, Pay Later.
ANDREW LEIGH, SHADOW ASSISTANT MINISTER FOR TREASURY AND CHARITIES: Great to be with you, Brooke.
BROOKE CORTE, HOST: Well, I mean, most of the Buy Now, Pay Later providers say they're not credit providers. Instead, they’re budgeting tools or cash flow managers, which I've always thought is kind of cute. Do you think there's truth in it or do you think it's spin?
LEIGH: They’ve attempted to stay out of the credit regulations by having limits on how much you're allowed to borrow, but I think we ought to just make sure that regulation is keeping up with technology. It's always the way - as technology advances, regulation needs to run to be there. And these new figures from the Commonwealth Bank suggest that if you want to get the whole picture, Brooke, you need to look not only at the default rates within the Buy Now, Pay Later product, but also how it might have downstream effects - how that might kick on to people being slow to pay their other bills.
CORTE: And is that what you think is happening?
LEIGH: That's certainly what the Commonwealth Bank data seems to suggest. You know, if you look at the share of customers in financial hardship: 4.9 per cent overall, 6.4 per cent among those who use Buy Now, Pay Later products. And the share who overdraw accounts and falling behind on repayments, again as you said, almost twice as large. So regulators need to be looking at the whole picture, and these data from the Commonwealth Bank are I think useful. Many people happily use Buy Now, Pay Later. It works well for them, doesn't cause any financial hardship issues. But I've certainly heard concerns among those who work with people in credit hardship, the consumer groups, that we need to make sure we're regulating carefully right across the products.
CORTE: Yeah. And for sure, Buy Now, Pay Later has provided competition. It gives people choice, and it has forced the big banks to offer more competitive products. Consumers love it. So there are parts of this definitely to be celebrated. But as we've alluded to, regulating the sector is a challenge. It's currently self-regulated. We have, the RBA put out a report which found Buy Now, Pay Later benefits outweigh the harm, saying the sector is still too small to warrant any further regulation. Now, that's pretty interesting to me, because Afterpay was bought by Square for about $40 billion, biggest corporate takeover in Australian history. Do you think the sector is now big enough to require real regulation?
LEIGH: Afterpay has been the most engaged company in terms of having the kind of sensible conversation about regulation. They've also got quite tight caps on how much you can borrow, and they've been, I think, quite thoughtful in how they've talked about regulation going forward. I’m more concerned with a range of the other operators, which don't have the same sort of low default rates and seem to be running a business model where they're making a lot of money out of late fees. And that's always got to be a red flag for you. If there's a credit provider who’s making most of their money out of the people who can't pay on time, then they start to look a whole lot more like an old-fashioned money lender than being a new technology platform.
CORTE: And you know, what's interesting to me about why we're talking about this today - the figures we've talked about are from CBA. And to be fair, CBA is actually launching its own Buy Now, Pay Later type product called StepPay. And in fact, between now and December they're paying merchants to have people use StepPay in order to kind of, you know, muscle their way in further into the sector. So I just wonder if this could be seen as Australia's biggest bank using its might to step on its competition? Maybe you're doing CBA’s bidding?
LEIGH: I don't have any reason to think that the Commonwealth Bank numbers are skewwhiff, but I do think that you need a proper look at it from the regulator standpoint. As you say, CBA had their tie up with Klarna. Now they've got StepPay. They've got a range of products there, as indeed the other big banks too. And things are shaking up fast in the payment system. Many of us are now tapping our phones, not even bothering to take out our wallets. Funnily enough, we've been having this debate over voter ID in the parliament and one of the points that that I think many of the older MPs don't realise is that for young Australians you don't carry a wallet now because you can just use your phone to pay, and so you don't have your ID with you at all times. So things are certainly moving quickly. We don't want to inconvenience people. We just want to make sure that those who are vulnerable are protected.
CORTE: If Labor's elected at the federal election inside the next six months, will you seek to regulate the Buy Now, Pay Later sector?
LEIGH: I think that would be jumping to conclusions. I'd like to see more analysis, and as you said, analysis that is being done by an independent third party rather than by someone with skin in the game. Just making sure that by Buy Now, Pay Later is continuing to do good to the broader community and that it's not having these hidden downstream effects.
CORTE: Thank you so much. Shadow Assistant Minister for Treasury, Dr Andrew Leigh. Appreciate your time as always.
LEIGH: Real pleasure, Brooke. Thank you.
Authorised by Paul Erickson, ALP, Canberra.