One of the reasons why Commonwealth Bank of Australia (CBA) claims it decided to enter the buy now, pay later (BNPL) market was because it thinks it would motivate policy makers to step up the way the emerging sector is currently regulated.
The bank recently released StepPay, a BNPL offering that links to its customers' bank account, can be used anywhere debit and credit payments are accepted for transactions, and there are no ongoing fees. There are also no additional costs to businesses, other than standard merchant fees.
"One of the reasons why we entered the space as we actually thought that perhaps the most expedient way for regulation to be introduced in that sector would be for us to offer it. That hasn't today been forthcoming," CBA chief executive Matt Comyn told the Standing Committee on Economics on Thursday.
BNPL allows individuals to purchase goods without immediate payment. Instead, users can pay for the purchase of a good later or in instalments.
When signing for BNPL services, such as Afterpay and Zip Co, customers are not required to undergo credit checks -- they can just sign up and spend.
This was one of issues that ANZ boss Shayne Elliot raised during the parliamentary review of the four major banks and other financial institutions. He pointed out that, unlike other financial services, the sector is not bound by legal obligations despite similarities in product offerings.
"I've always said there's a place for [BNPL]. Obviously, that doesn't mean that we need to do it … and if used appropriately, it's a perfectly decent product," he said.
"Our concern is more to do with potential for that product to be used inappropriately and largely without regulation.
"I think it's ironic … Afterpay, which is now owned by Square, has launched what they call retro buy now, pay later. So, something you've already bought, you've already paid for, you can change your mind, and they'll give you credit against it.
"But apparently, according to our regulatory framework, that's not credit, and therefore, they're not subject to the same rules as everybody else about responsible lending.
"If I gave you an AU$200 overdraft without doing a full credit check … I'd have a breach report with ASIC. I find that's exactly the sort of regulatory arbitrage I don't think is helpful in the marketplace."
What Elliot wants to see are "regulatory frameworks that continue to support a fair, contestable banking and financial services market for the benefit of the community".
Reserve Bank of Australia (RBA), which has been looking into this space, previously said the concern with BNPL wasn't the consumer side, but rather, the payments system.
"The issue we're looking at is really based around no-surcharge rules, which is an issue to do with competition and level playing fields. So that's the issue we're focused on," RBA financial system assistant governor Michele Bullock said.
In March, the Australian Finance Industry Association (AFIA) introduced a code of conduct, which it touted as being a "proactive approach to increasing consumer protections" that goes "beyond current regulatory obligations for BNPL products or services".
The code includes a focus on the customer, including taking into consideration any vulnerabilities they may have; the promise to be "fair, honest, and ethical" in a company's practices, which includes a commitment to the Australian government's Artificial Intelligence Ethics Principles; and ensuring that a product is suitable before signing up a customer.
Existing customers are also privy to the code's directions and ongoing review of a product or service's suitability when undertaken.
BNPL providers will be members of the Australian Financial Complaints Authority and subject to its rules. In complying with the code, companies and their agents will also comply with the debt collection guidelines from the Australian Competition and Consumer Commission and ASIC.
Afterpay, Brighte, Humm Group, Klarna, Latitude, Openpay, Payright, and Zip Co are currently accredited to the code.