BNPL regulation needs to be fit for purpose, says Afterpay’s Saadat
Regulation should be fit for purpose and compliance must not be approached as a ticking box exercise, according to Afterpay director of public policy and regulatory affairs and former ASIC executive Michael Saadat.
Saadat was speaking on a panel at the RFi Group Australian Banking and Innovation Summit with Brighte chief risk officer Ann Devine and chaired by RFi Group client insights manager Anna Shaw.
“My background, certainly working for the regulator, but also working for large financial institutions certainly does help as Afterpay grows.
“Having worked across different consumer financial products, looking at how they are structured, does give you the ability to understand what works well and what does not work well.
He added that this has given him a knowledge of the “traps that other [organisations] have faced.”
Saadat believes that Afterpay is in a great position having “launched a product that consumers love that is also taking the world by storm.”
As head of regulation, legislation and compliance is clearly his remit, and while a recent government inquiry into fintech and technology did not recommend additional regulation, Saadat acknowledges, that regulatory oversight of the sector is “absolutely appropriate,” but that it needs to be “fit for purpose”
“If you accept that the BNPL industry is diverse and that is clearly the case, than it should be appreciated that a one size fits all approach is not the right way to go.
“Regulation has for many years been criticised because it has promoted this sort of tick the box approach to compliance where meeting the regulatory requirements is just a process an organisation goes through without any regard to consumer outcomes.
“Ultimately we need to be held accountable for those consumer outcomes and not held accountable for whether we tick a particular box, because I think for many years, large institutions have been ticking boxes and producing bad consumer outcomes.
“I think we need to flip that around and make sure that it's the consumer outcome that we're being judged against, which is the most important thing.”
Brighte’s Devine highlighted the recent Australian Competition Tribunal decision to greenlight the use of BNPL in clean energy technology.
The decision was important [because] it found that BNPL was a popular and significant product used by consumers to invest in new energy tech products. It was also an endorsement of the economic benefits that BNPL provides,” Ann Devine, Brighte
Brighte provides BNPL and personal loan options for people wanting to buy products in clean energy such as solar panels.
“The decision was important [because] it found that BNPL was a popular and significant product used by consumers to invest in new energy tech products. It was also an endorsement of the economic benefits that BNPL provides.”
Here Devine highlighted the tribunal’s commentary which noted that top three BNPL providers of finance generated 14 per cent of the solar installations between May 2018 and 2019, revealing that it is a significant financial product in that industry and it is accelerating the uptake of solar.
Both Brighte and Afterpay along with other providers are working with the wider industry on developing an industry code of practice.
Given the diversity of the sector, the code of practice will ensure a scaled and proportionate approach.
“We don’t want to hurt innovation. We want to create competition and ensure that consumer outcomes are the right one,” Saadat said.
The BNPL providers also outlined their approaches to managing responsible lending and consumer hardship cases.
Afterpay puts a cap on late repayments and importantly pauses spending as soon as a customer misses a payment. It also does not do credit checks and does not report to credit bureaus.
Saadat said the provider has “a really accessible and genuine hardship program”.
The program involves online and phone support and works with customers around flexible repayments.
“Interestingly during the COVID period, we are seeing our hardship numbers come down quite significantly. This demonstrates again that customers through the period have used buy now, pay later in a responsible way.”
Brighte’s approach is similar.
..we know that consumers don't always make the best decisions. It’s possible for a company to design a bad product and sell it to customers and produce really bad consumer outcomes,” Michael Saadat, Afterpay
“When we enter into a relationship with our customers, it’s a longer term contract. We never want to see someone in hardship but we also understand that people can get into difficulties and we are there for them,” Devine said.
Like Afterpay, Brighte too has a dedicated team that can offer flexible payment arrangements.
“We also encourage our customers to come to us and let us know if they're having difficulty making repayments,” Devine said.
Brighte is also, like Afterpay, not experiencing a high level of hardship claims as expected from COVID-19 and Devine puts this down to its demographics – older and more credit savvy customers who ensure BNPL repayments are part of their budget.
For Saadat, product design is also key to ensuring customers understand and use products in a responsible way.
“You can have the best kind of disclosures. You can have the best kind of regulation, but we know that consumers don't always make the best decisions. It’s possible for a company to design a bad product and sell it to customers and produce really bad consumer outcomes.
“We have seen this happen time and time again.
“The way a product is designed is really critical,”
For example, Afterpay starts its consumers on low spending limits which only increases when the consumer demonstrates positive repayment behaviour over time.
As noted earlier, accounts are paused as soon as a customer misses a payment.
This safeguard “stops them from entering a debt spiral”.
He also highlighted that Afterpay is not a product where you can “make low minimum payments and kick the can down the road” - that is customers will be required to make the repayments during the set time
“We are about owning the product, not renting a product and paying interest over many, many years.
“Our customers appreciate this transparency. They like the fact that we never charge them interest. There is no sort of bait and switch with different interest rate options.”
For Sadaat, it’s “really exciting” working in a smaller but growing organisation.
“There is a real diversity of colleagues as well. I am really enjoying the ability to get things done and roll up my sleeves and work on interesting things.
“We now have 700 people globally. Coming in as a new person, I certainly feel very agile and entrepreneurial. It’s great.
Similarly it has been a career change for Devine. Brighte is the first fintech she has worked for.
Her career includes 20 years in financial services – with roles in law, risk, compliance and superannuation and wealth management.
“I believe that well managed risk creates opportunities for businesses to grow and prosper.”