Dave Sharma (Wentworth, Liberal Party) Share this | Hansard source

I thank the member for Mayo for putting this important issue on the agenda. Buy-now pay-later schemes, for those who don't know, allow you to receive a good or a service now and pay for it later. They're a little like a modern-day lay-by scheme. Some of the most common ones in Australia are Afterpay and Zip Pay. I wish to declare here that I am a shareholder in both Afterpay and Zip Pay. I'm also a shareholder in most of their competitors—the major banks—as I expect many Australians are, through their superannuation funds.

Buy-now pay-later schemes are increasingly popular in Australia. From 2010 to 2016, credit card usage in Australia was on the increase, but since 2016 it's been in decline. Most of that decline has been taken up by buy-now pay-later schemes. As of June 2019, there were 6.1 million open buy-now-pay-later accounts in Australia. That means one-third of adults have a buy-now pay-later account. There are some 56,000 merchant agreements—that is, agreements between providers of buy-now pay-later services and merchants—and the amount of credit extended through these schemes has doubled from 2017-18 to 2018-19. To my mind, buy-now pay-later schemes provide consumers with important elements of choice. As the recent ASIC report, No. 672 of November 2020, says, 'They provide consumers with increased choice and access to payments and credit options with unique features and benefits.' I think it's important we keep that in mind. There's a reason consumers like buy-now pay-later schemes.

As the member for Mayo pointed out, the missed-fee-payment revenue for buy-now pay-later schemes was $43 million last. I agree that's of concern. That's up 38 per cent from the previous year. But over that same period the number of transactions almost doubled, from $16.8 million to $32 million, an increase of 90 per cent, and the value of all transactions went up 79 per cent, from $3.1 billion to $5.6 billion. So, in a year when late-payment fees went up by 38 per cent, the number of transactions increased by 90 per cent and the value of transactions increased by 79 per cent. By way of comparison, in 2016-17, the last year for which I could find data, $1.5 billion in credit card late fees—not interest—was charged. I think that shows you that there's a difference in scale. Credit card late payment fees are an order of magnitude higher than the missed payment fees in the buy-now pay-later schemes.

It's true that some providers in the buy-now pay-later space rely on late fees to make the economics work, but not the most profitable and not those with the biggest market share. Zip, for instance, receives less than one per cent of its revenue from late fees and relies largely upon merchant fees to make its economics work. Afterpay, which accounts for 73 per cent of the value of transactions in Australia, accounts for only 27 per cent of buy-now pay-later debt, and it has a number of mechanisms in place to avoid consumers falling into a debt trap. Consumers are suspended from using the service if they miss a payment. The average transaction value for Afterpay is $147. Consumers are unable to revolve their debt, and Afterpay, like the other responsible providers, generates 85 per cent of its revenue from merchant fees, which is what we would hope.

As the Senate Select Committee on Financial Technology and Regulatory Technology reported in its interim report in September last year, 'Innovative fintech companies are using technology to improve customer experience and outcomes and solve customer problems.' As that report identified, there is an opportunity for Australia to host a vibrant and growing fintech sector which has the potential to revolutionise financial services in Australia, increase competition in the sector and provide better outcomes for consumers.

From October 2021, design and distribution obligations will apply to buy-now pay-later schemes, and I welcome that. I think it's an important issue of customer assurance. This will require issuers of buy-now pay-later products to identify in advance a class of consumers for whom the product is appropriate and to make sure that they direct distribution to that target market. In December 2019, a little over a year ago, the Australian Finance Industry Association, the relevant industry body, announced that it would develop an industry code of practice for buy-now pay-later providers, which will in part seek to respond to the findings in the earlier ASIC report on this topic. Again, I also welcome this. I understand that the industry code of practice will be published and become effective from 1 March 2021.

Finally, ASIC also has a product intervention power under the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019. I think it's important we keep in mind these products give consumers choice, allow them to smooth their consumption and keep them away from riskier high-interest products.

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