Responsible lending in focus with growing usage of BNPL amongst millennials
Regulating the buy-now-pay-later sector was among the key issues debated at the recent forum by the Australian Retail Credit Association, given the rapid growth of these services and the increasing numbers of retailers coming on board.
In fact, the theme of the forum was how millennials were consuming credit as the sector continues to grow.
Panel members included flexigroup chief revenue officer Libby Minogue; 86 400 chief risk officer Guy Harding; Telstra customer acquisition, credit and fraud risk management Sharon Hatherall and Millennial Money founder Glen James.
James questioned the need to for regulatory oversight of the growing sector.
Currently, BNPL does not come under the comprehensive credit reporting and to date, ASIC has not signalled it would introduce any regulation to the sector.
James questioned whether consumers really understood that they were consuming credit – adding to their debt burden.
Particularly as he believes that BNPL products will end up stretching out to yearly payments and beyond as long as they are not regulated.
For flexigroup’s Minogue, the business is at the forefront of developing a code of conduct for the BNPL sector.
“We are hoping to have the Code of Conduct completed by the end of the year,” Minogue said.
While prudent oversight on the sector was key, the panel did highlight that the reason why the BNPL sector has grown so strongly was because it served a need in the market that was not provided by the traditional players.
They are looking at alternative ways to manage their finances and humm is a tool that gives them the flexibility to save, Libby Minogue, flexigroup
“The reason why there has been such a growth in BNPL is because traditional financial products have not met the needs of younger generations who are not willing to pay interest. They are looking for opportunities that provide them with flexibility,” Minogue said.
While consumers attract a fee when they extend their repayment terms under a BNPL model, Minogue noted that this is often at a flat fee [in flexigroup’s case it stands at $8] which is still significantly less than credit card interest rates.
86 400’s Harding spoke about a “trust deficit” in the market for traditional credit products.
While the cash rate is at an all-time low, Harding highlighted that banks are still charging over 20 per cent on their credit cards.
We can pull all their data from different sources and give them a single view of their finances in one dashboard, Guy Harding, 86 400
“There is this distrust of credit cards among millennials. It is very hard to offer a counter argument that 20 per cent is an attractive rate,” he said.
Provider approaches to the way millennials consumed credit was also explored.
Telstra’s Hatherall highlighted that for millennials their first commitment to credit is often through a phone plan.
“We found that millennials were attracted to shiny phones such as the iPhone or Samsung but they are also the most expensive phones,” Hatherall said.
“These customers also want the big data packages that go with these expensive phones. Before they know it, they have committed to signing up to $4,000 worth of credit that will need to be paid over 24 months,” she said.
Here she acknowledged that there is a role for responsible lending, adding that the telco has already updated its credit policy and while she was open to the idea of extending repayment plans to 36 months [to ease the level of repayments] she noted that often the duration of phones don’t last that long.
Flexigroup has already launched a BNPL product humm but it differs to the Afterpay which tends to focus on lower value purchases.
Consumers can use humm for a wider range of purchases such as home improvements, and even dental fees.
Minogue said that millennials are now shifting their attitude to spending and are now increasingly focused on financial wellbeing rather than just experiences and travel.
“They are looking at alternative ways to manage their finances and humm is a tool that gives them the flexibility to save,” she said.
86 400 - among the first neobanks to launch in Australia - is “about making life easier. We are here to help rather than catch people out,” Harding said.
The business is just shy of 10, 000 customers and attracts around $1 million a day.
“Our customers are 45 per cent millennials and 44 per cent Gen Z and I make up the rest,” Harding quipped
“We have developed a solution that appeals to millennials as well as ordinary people like myself,” he said.
Here the bank has launched an aggregator model that allows its customers to view all their products across all their providers even from different banks
“We can pull all their data from different sources and give them a single view of their finances in one dashboard,” Harding said.
Other features also include providing reminders on upcoming expenses such as the often-forgotten gym membership.
“It’s about giving people, not just millennials, all the information they need to make the right decisions,” he said.
For flexigoup’s Minogue, the business will definitely continue to play in the BNPL sector.
“Consumers are the forefront of everything we do. We want to own the digital wallet. Therefore, understanding how customers think about credit will be key.”