ASIC takes small stick to Afterpay

The Australian 12:00am January 25, 2019

Richard Gluyas

Fears of a crackdown on the booming buy now, pay later ­industry have eased after the ­corporate regulator told a Senate committee that a light regulatory touch through the proposed ­expansion of its product intervention powers was a sensible first step.

ASIC senior executive leader Michael Saadat told the committee, which is ­inquiring into the ­extension of credit to vulnerable Australians, that the reform would enable it to ­directly ­address any consumer harm by forcing providers to adopt more stringent safeguards.

“If consumers are (still) experi­encing bad outcomes, we’d recommend further reform,” Mr Saadat said. “The industry is relatively new. It’s growing very quickly, admittedly, but we think product intervention powers will enable us to respond quickly to emerging issues.”

A gulf emerged this week ­between industry leaders Afterpay and Zip over the most ­appropriate regulatory framework to prevent customers falling into a debt trap.

ASIC’s position, which was foreshadowed by The Australian on Wednesday, is supported by Afterpay. Zip, on the other hand, proposed a tougher approach ­incorporating a scaled-down version of the responsible lending obligations that apply to mainstream lenders.

Chief executive Larry Diamond told the committee that Zip openly acknowledged it was a credit provider, conducting credit and identity checks on every ­applicant for its service.

Real-time bank statements were used to verify income and expenditure, and the company did not target customers at risk of financial hardship.

These checks meant that only one in 100 of the company’s customers struggled to make their monthly repayments, significantly lower than the one-in-six average for the sector.

Zip customers also had a ­higher average credit score than credit-card applicants at the big four banks.

Mr Diamond remained confident yesterday that Zip’s framework would be adopted.

“We support increased oversight, and the granting of the product intervention power is a sensible move,” he said.

“We’d hope under that power that ASIC would look at some minimum standards for the sector, and we’d be very happy to work in consultation with ASIC on that.”

Mr Saadat told the committee that application of the responsible lending rules to the buy now, pay later sector was “not an unreasonable position” to take.

However, it was not clear if such an approach would make a significant difference to consumer outcomes.

For that reason, a sensible first step was to extend the product ­intervention powers.

While the ASIC boss took on notice a question about the regulatory approach in offshore markets to the buy now, pay later sector, similar companies to Afterpay with global operations have incorporated credit checks into their business models.

One example of this is Sweden’s Klarna group, described on its website as one of Europe’s largest banks that also provides payments solutions for 60 million consumers in 14 countries.

Klarna says it performs a “soft” credit check that does not affect a customer’s credit score and is not visible to other lenders.

Meanwhile, data group Illion, formerly Dun & Bradstreet, hosed down reports that it helped companies like Afterpay access the confidential electoral roll to verify the identity of their customers.

Chief executive Simon Bligh said Illion was one of the leading providers of identity verification services to the financial services market, enabling firms to comply with legislation, including anti-money laundering laws.

“We access the electoral roll on behalf of our customers for ID verification purposes in accordance with AML legislation,” Mr Bligh said.

“The electoral roll is never used, or sold, by Illion for marketing purposes.”

Afterpay confirmed it used ­Illion for customer identification, which it described as a “common and well-established practice”.

“Afterpay does not use data from the electoral role for commercial purposes,” a spokes­woman said. “One of the outcomes of these checks is that it allows Afterpay to verify that our customers are 18 years or older before they make a purchase.”

The Senate committee is due to report by February 22.