For anyone investing in Buy Now, Pay Later (BNPL) ASX companies like Afterpay Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P) would know, regulatory issues are never too far away.
The BNPL concept is a relatively new one, and regulators have struggled with how to classify it compared to traditional lines of credit that are typically offered by the big ASX banks.
It appears that a collection of BNPL providers have taken matters into their own hands and gone on the front foot.
According to reporting from the Australian Broadcasting Corporation (ABC), some of the ASX's biggest disruptive payment platforms have committed to a new 'Code of Practice' that will govern controversial practices like late fees and clients' financial vulnerability, age and ability to pay.
What was announced?
This 'Code' has been developed by the Australian Financial Industry Association (AFIA), which is a group representing companies in the BNPL sector.
Afterpay and Zip Co are both participating signatories, as well as newer payment providers like Openpay Group Ltd (ASX: OPY) and the still-private Latitude Financial.
The ABC quotes AFIA chief executive Diane Tate, who has stated:
"We have heard criticisms that young people could lose control of their spending, so the code includes a clause which says buy now, pay later products won't be available to people under 18… There is another area of concern, which is about people getting over-committed, so we're doing an upfront assessment to make sure the customers are suitable for the product. And another area which is really important in this code also is putting in a cap on late fees."
However, not everyone has welcomed this new move towards self-regulation for the BNPL sector. The ABC also quotes Gerard Brody from the Consumer Action Law Centre:
"We know that a key problem in the buy now, pay later market is over-commitment and hardship… ASIC research found that one in six users are financially over-committed. It's not clear the code deals with this, we find that some people prioritise repayment over buy now, pay later, so they don't get kicked off the app, but default on other obligations… It gives a lot of discretion to the provider."
What does this mean for ASX BNPL shares?
It is worth noting that the regulatory issues facing these companies are (for now) confined to the Australian market – which Afterpay, in particular, is growing far beyond.
But speaking for the Australian market, it's likely that this new Code will give Afterpay, Zip and other payment providers some breathing room from the constant threats of increased regulation. However, it's clear that concerns over these new 'ways to pay' are not going away anytime soon.
If you invest in ASX BNPL shares, I would expect further discussions surrounding increased regulation to continue for the foreseeable future.
At the time of writing, the Afterpay share price is trading down 0.16% at $37.93, while Zip Co shares are down 0.74% at $4.05.
