ASX BNPL shares deep in the red as ASIC turns up the regulatory heat

ASX BNPL shares look to be under pressure after ASIC came out in support of stringent new regulatory proposals.

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Key points
  • ASX BNPL shares are in the red on Friday
  • ASIC is proposing new BNPL regulations in line with those imposed on credit card companies
  • The government has not yet decided which regulatory proposals to adopt

ASX buy now, pay later (BNPL) shares are under selling pressure on Friday.

While the All Ordinaries Index (ASX: XAO) is also down 0.61% as we head into the lunch hour, the BNPL companies are faring significantly worse.

The pay-by-instalment industry looks to be under pressure after the Australian Securities and Investments Commission (ASIC) came out in support of stringent new regulatory proposals.

At the time of writing, here's how these ASX BNPL shares are faring:

  • Shares in Block Inc (ASX: SQ2), which acquired Afterpay in January last year, are down 7.62%
  • Zip Co Ltd (ASX: ZIP) shares are down 3.33%
  • Sezzle Inc (ASX: SZL) shares are down 3.8%

Here's what's happening.

Sad shopper sitting on a sofa with shopping bags and lamenting the fall in ASX retail shares of late.

Image source: Getty Images

What new rules is ASIC proposing?

ASX BNPL shares have been in limbo for some time now as to what types of lending standards they'll be held to.

Treasury is considering three options in a bid to protect consumers from taking on too much debt.

Yesterday, ASIC came out in favour of the most stringent of those three alternative proposals.

Should the government adopt ASIC's decision, ASX BNPL shares will be facing largely the same regulatory hurdles as credit card companies. That means they may need to dig into their customers' financial health before opening a line of interest-free credit.

That could prove an onerous burden in the current environment of high inflation and rising interest rates.

According to the ASIC report (courtesy of The Australian Financial Review):

Products with similar characteristics and the same purpose and function should be treated the same way in the regulatory framework.

Uniform regulation under the National Credit Act would bring a more consistent regulatory framework across all buy now, pay later providers and a standardised regime that could be enforced by ASIC.

Commenting on the development putting ASX BNPL shares under pressure today, analysts at Moody's Investors Service said (quoted by the AFR):

Regulation remains a continuing hurdle for fintechs In Australia, the once fast-growing BNPL sector is facing scrutiny as the government is considering a number of options to enhance the regulation of consumer credit.

More regulatory burdens will result for all BNPL providers, including Afterpay and Zip.

But no final decision has been made. Financial Services Minister Stephen Jones said the government was still working through the specifics of the pending regulations.

How have these ASX BNPL shares performed over a year?

With today's falls factored in, the ASX BNPL shares listed above have sunk even deeper into the red.

Here's how they've performed over the past 12 months:

The Block share price is down 24%:

The Zip share price is down 78%:

And the Sezzle share price is down 70%:

Whether buying these stocks at these prices represents grabbing a bargain or catching a falling knife remains to be seen.

With that said, should the government opt for a lighter regulatory approach, they could well enjoy a healthy bounce.

Stay tuned.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Block and Zip Co. The Motley Fool Australia has positions in and has recommended Block. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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