Sage Journals: Discover world-class research

Abstract

Buy-now-pay-later (BNPL) arrangements have rapidly emerged as a short-term debt option, and like other innovative and disruptive Fintech, challenge existing regulation. BNPL arrangements avoided prescribed ‘responsible lending’ legislative obligations, which applied to similar short-term credit products. Instead, BNPL relies on ‘responsible spending’ in providing a potentially cheaper option than alternatives such as credit cards. We describe the interplay of regulation and responsibility with BNPL. A survey investigates whether a key demographic (young adults) have an appetite or skill for responsible use. We analyse the preference for BNPL relative to credit cards and the role of financial literacy and traits including propensity to plan and save. The findings suggest that financial literacy reduces perceived BNPL benefits and that lower financial literacy is associated with more benefits and less risks.

JEL Classification: G53, D14, G51, G41, G18

Keywords

Debt financial literacy Fintech responsible lending responsible selling responsible spending

Get full access to this article

View all access options for this article.

References

Afterpay (2020a) Afterpay fact sheet. Available at: https://www.afterpay.com/attachment/44/show

Afterpay (2020b) Afterpay is committed to responsible spending. Available at: https://www.afterpay.com/en-AU/responsible-spending

Afterpay (2020c) Partner with the most loved way to pay. Available at: https://www.afterpay.com/en-AU/business

Afterpay (2020d) Submission (83) to the Senate Select Committee inquiry on Financial Technology (FinTech) and Regulatory Technology (RegTech). Available at: https://www.aph.gov.au/DocumentStore.ashx?id=79fc0dda-c2ad-4930-9192-5a03a726df16&subId=675279

Afterpay (2020e) Submission from Afterpay to the Reserve Bank of Australia (RBA) Review of Retail Payments Regulation: Issues Paper (RBA Review). Available at: https://www.afterpaytouch.com/images/06022020-Afterpay-Submission-to-RBA-Issues-Paper-on-Retail-Payments-Regulation.pdf

Afterpay Touch Group (2019a) AUSTRAC Update – Final audit report. Available at: https://www.afterpaytouch.com/images/25112019—AUTRAC-Update—Final-Audit-Report.pdf

Afterpay Touch Group (2019b) Joint consumer submission on the proposed Design and Distribution Obligations and Product Intervention Powers. Available at: https://www.afterpaytouch.com/images/21012020-Afterpay-submission-to-Senate-FinTech-and-RegTech-inquiry.pdf

Afterpay Touch Group (2019c) Afterpay Touch Group Limited ASX announcement. Available at: https://www.afterpaytouch.com/images/1936384.pdf

Agarwal

Driscoll

Gabaix

, et al. (2009) The age of reason: Financial decisions over the life-cycle with implications for regulation. Brookings papers on economic activity. Available at: https://www.brookings.edu/wp-content/uploads/2016/07/2009b_bpea_agarwal.pdf

10.

Ajzen

(1985) From intentions to actions: A theory of planned behavior. In: Kuhl

Beckman

(eds) Action-Control: From Cognition to Behavior. Heidelberg: Springer, pp. 11–39.

11.

Ajzen

(1991) The theory of planned behavior. Organizational Behavior and Human Decision Processes 50: 179–211.

12.

Ajzen

(2011) The theory of planned behaviour: Reactions and reflections. Psychology & Health 26: 1113–1127.

13.

Ajzen

(2015) The theory of planned behaviour is alive and well, and not ready to retire: A commentary on Sniehotta, Presseau, and Araújo-Soares. Health Psychology Review 9: 131–137.

14.

Ambuehl

Ockenfels

(2017) The ethics of incentivizing the uninformed: A vignette study. American Economic Review 107: 91–95.

15.

Australian Bureau of Statistics (2019) Household Income and Wealth, Australia, 2017-18 (Cat. No. 6523.0). Available at: https://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6523.02017-18?OpenDocument

16.

Australian Competition and Consumer Commission (ACCC) (2019) Lay-by agreements. Available at: https://www.accc.gov.au/consumers/contracts-agreements/lay-by-agreements

17.

Australian Finance Industry Association (2020) Code of practice for buy now pay later providers. Available at: https://www.afia.asn.au/s/AFIA-Web-Code-of-Practice-for-Buy-Now-Pay-Later-Providers_Final.pdf

18.

Australian Securities and Investments Commission (ASIC) (2015) Payday lenders and the new small amount lending provisions (Report 426). Available at: https://download.asic.gov.au/media/3038267/rep-426-published-17-march-2015.pdf

19.

Australian Securities and Investments Commission (ASIC) (2018a) Credit card lending in Australia (Report 580). Available at: https://download.asic.gov.au/media/4801724/rep580-published-4-7-2018.pdf

20.

Australian Securities and Investments Commission (ASIC) (2018b) Review of buy now pay later arrangements. Available at: https://download.asic.gov.au/media/4957540/rep600-published-07-dec-2018.pdf

21.

Australian Securities and Investments Commission (ASIC) (2020a) Buy now pay later: An industry update. Available at: https://asic.gov.au/regulatory-resources/find-a-document/reports/rep-672-buy-now-pay-later-an-industry-update/

22.

Australian Securities and Investments Commission (ASIC) (2020b) Product intervention power (Regulatory Guide 272). Available at: https://download.asic.gov.au/media/5633261/rg272-published-17-june-2020.pdf

23.

Australian Transaction Reports and Analysis Centre (AUSTRAC) (2019) Notice to appoint an external auditor to conduct compliance audit. Available at: https://www.austrac.gov.au/sites/default/files/2019-06/Afterpay_Pty_Ltd_-_section_162_notice.pdf

24.

Balyuk

(2019) Financial innovation and borrowers: Evidence from peer-to-peer lending. Available at: https://sites.google.com/site/tetyanabalyuk

25.

Brugiavini

Cavapozzi

Padula

, et al. (2015) Financial education, literacy and investment attitudes. SAFE Working Paper No. 86. Frankfurt: University of Venice and SAFECenter, University of Frankfurt.

26.

Caddy

Delaney

Fisher

, et al. (2020) Consumer payment behaviour in Australia. RBA Bulletin, March, pp. 9–19.

27.

Commonwealth Bank (2020) What is buy now, pay later? Available at: https://www.commbank.com.au/guidance/consumer-finance/buy-now-pay-later-understanding-payment-programs-201802.html

28.

Commonwealth of Australia (2009) National Consumer Credit Protection Bill 2009, Explanatory Memorandum. Available at: https://www.legislation.gov.au/Details/C2009B00148/Explanatory%20Memorandum/Text

29.

Commonwealth of Australia (2014) Financial system inquiry final report. Available at: https://treasury.gov.au/publication/c2014-fsi-final-report

30.

Commonwealth of Australia (2016) Review of the small amount credit contract laws: Final report. Available at: https://treasury.gov.au/consultation/review-of-small-amount-credit-contracts-final-report

31.

Commonwealth of Australia (2018) Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill: Explanatory Memorandum. Available at: https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r6184

32.

Commonwealth of Australia (2019a) Credit and Hardship: Report of the Senate Inquiry into Credit and Financial Products Targeted at Australians at Risk of Financial Hardship. Canberra, ACT, Australia: Senate Printing Unit, Parliament House.

33.

Commonwealth of Australia (2019b) Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Final Report. Available at: https://financialservices.royalcommission.gov.au/Pages/reports.aspx#final

34.

Commonwealth of Australia (2019c) Restoring trust in Australia’s financial system: The Government response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Available at https://treasury.gov.au/sites/default/files/2019-03/FSRC-Government-Response-1.pdf

35.

Commonwealth of Australia (2020a) National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020. Available at https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r6656

36.

Commonwealth of Australia (2020b) National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020: Exposure Draft Explanatory Memorandum. Available at https://treasury.gov.au/consultation/c2020-124502

37.

Consumer Action Law Centre (2021) Submission on National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020. Available at https://consumeraction.org.au/wp-content/uploads/2021/02/Consumer-advocates-submission_National-Consumer-Credit-Protection-Amendment-Supporting-Economic-Recovery-Bill-2020-002.pdf

38.

Dholakia

Tam

Yoon

, et al. (2016) The ant and the grasshopper: Understanding personal saving orientation of consumers. Journal of Consumer Research 43: 134–155.

39.

Fernandes

Lynch

Netemeyer

(2014) Financial literacy, financial education, and downstream financial behaviors. Management Science 60: 1861–1883.

40.

Financial Capability (2018) National financial capability strategy. Available at: https://financialcapability.gov.au/strategy/#home

41.

Gerrans

Heaney

(2019) The impact of undergraduate personal finance education on individual financial literacy, attitudes and intentions. Accounting & Finance 59: 177–217.

42.

Kaiser

(1974) An index of factorial simplicity. Psychometrika 39: 31–36.

43.

Klarna (2019) Terms and conditions. Available at: https://www.klarna.com/uk/terms-and-conditions

44.

Laybuy (2019) Consumer terms and conditions. Available at: https://www.laybuy.com/au/consumer-terms

45.

(2018) Gender-related Differences in Credit Use and Credit Scores. FEDS Notes. Washington: Board of Governors of the Federal Reserve System. Available at: https://www.federalreserve.gov/econres/notes/feds-notes/gender-related-differences-in-credit-use-and-credit-scores-20180622.htm

46.

Loewenstein

(1987) Anticipation and the valuation of delayed consumption. The Economic Journal 97: 666–684.

47.

Longs

(2016) New methods of interpretation using marginal effects for nonlinear models. EUSMEX 2016: Mexican Stata Users Group. Available at https://www.stata.com/meeting/mexico16/slides/Mexico16_Long.pdf

48.

Lynch

Jr Netemeyer

Spiller

, et al. (2010) A generalizable scale of propensity to plan: The long and the short of planning for time and for money. Journal of Consumer Research 37: 108–128.

49.

Milner

Rosenstreich

(2013) Insights into mature consumers of financial services. Journal of Consumer Marketing 30: 248–257.

50.

Moradi-Motlagh

Jubb

(2020) Examining irresponsible lending using non-radial inefficiency measures: Evidence from Australian banks. Economic Analysis and Policy 66: 96–108.

51.

Paterson

Howell

(2018) Everyday consumer credit overview of Australian law regulating consumer home loans, credit cards and car loans (Royal Commission in Misconduct in the Banking, Superannuation and Financial Services Industry Background Paper 4). Available at: https://financialservices.royalcommission.gov.au/publications/Documents/australian-consumer-credit-protection-law-overview-background-paper-4.pdf

52.

Reserve Bank of Australia (2019) Review of retail payments regulation: Issues paper. Available at: https://www.rba.gov.au/payments-and-infrastructure/review-of-retail-payments-regulation/pdf/review-of-retail-payments-regulation-issues-paper-nov-2019.pdf

53.

von Gaudecker

H-M

(2015) How does household portfolio diversification vary with financial literacy and financial advice? The Journal of Finance 70: 489–507.

54.

Wilkins

Lass

(2018) The Household, Income and Labour Dynamics in Australia Survey: Selected Findings From Waves 1 to 16. Melbourne, Victoria: Melbourne Institute of Applied Economic & Social Research, University of Melbourne.

55.

Worthington

Whittaker

(2006) Scale development research: A content analysis and recommendations for best practices. The Counseling Psychologist 34: 806–838.

56.

Zip (2019) Buy now pay later policy recommendations. Available at: http://zipmoneylimited.com.au/files/Zip_Policy_Recommendations_Final.pdf

Supplementary Material

Please find the following supplemental material available below.

For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.

For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.

0.00 MB

0.03 MB

Fintech and responsibility: Buy-now-pay-later arrangements

Abstract

Keywords

Get full access to this article

References

Supplementary Material