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Regulating Buy Now, Pay Later: A New Era for Financial Services

Regulating Buy Now, Pay Later: A New Era for Financial Services

The buy now, pay later (BNPL) industry, nearing its 10th anniversary, remains a polarizing topic. Proponents argue it's a financial innovation challenging big banks by offering a more flexible payment option, while critics view it as a means of lending that exploits regulatory loopholes, potentially putting vulnerable consumers at risk. Recently, Financial Services Minister Stephen Jones introduced new legislation in an attempt to balance these perspectives by bringing BNPL services under the Credit Act's umbrella. This move mandates that new BNPL users undergo credit checks, aiming to offer more consumer protection without stifling the industry. However, this legislation doesn't address all concerns. A significant debate persists over whether BNPL providers should also face regulations allowing retailers to pass on the costs of BNPL transactions through surcharges, akin to credit card fees. The proposed regulations will lead to relatively manageable changes for major BNPL players like Afterpay, Zip, and Klarna, which offer short-term, interest-free loans repaid through installments. This development marks a critical step towards creating a more regulated and secure financial environment for BNPL users.

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