1 00:00:03,840 --> 00:00:06,690 Sean Alymer: Welcome to the FEAR & GREED daily interview. I'm Sean Aylmer. 2 00:00:07,080 --> 00:00:10,469 Sean Alymer: Buy Now Pay Later operators are gearing up for regulation 3 00:00:10,470 --> 00:00:14,010 Sean Alymer: with Treasury releasing an options paper outlining what the future 4 00:00:14,010 --> 00:00:17,009 Sean Alymer: looks like for the sector. It's a sector that's grown 5 00:00:17,070 --> 00:00:20,070 Sean Alymer: very quickly over the past decade or so, but it's 6 00:00:20,070 --> 00:00:23,579 Sean Alymer: come with some growing pains. Share prices have dropped recently 7 00:00:23,579 --> 00:00:25,709 Sean Alymer: and a whole range of issues have been raised with 8 00:00:25,800 --> 00:00:31,380 Sean Alymer: Treasury. These include allegations about unaffordable lending practices, excessive fees, 9 00:00:31,710 --> 00:00:35,250 Sean Alymer: poor complaints handling, and non- participation in the credit reporting 10 00:00:35,250 --> 00:00:39,420 Sean Alymer: framework, making credit checks by other lenders difficult. With this 11 00:00:39,420 --> 00:00:42,180 Sean Alymer: in mind, Treasury has now put forward three options for 12 00:00:42,180 --> 00:00:46,350 Sean Alymer: regulatory intervention. The first: strengthening the Buy Now Pay Later 13 00:00:46,350 --> 00:00:51,960 Sean Alymer: industry code plus an affordability test. The second: limited regulation 14 00:00:51,960 --> 00:00:54,690 Sean Alymer: under the Credit Act requiring providers to have an Australian 15 00:00:54,690 --> 00:01:00,450 Sean Alymer: Credit License and have modified responsible lending obligations. Or the third, ( 16 00:01:00,450 --> 00:01:03,480 Sean Alymer: the all in one): is regulation of Buy Now Pay 17 00:01:03,480 --> 00:01:06,990 Sean Alymer: Later under the Credit Act with the responsible lending obligations 18 00:01:06,990 --> 00:01:10,110 Sean Alymer: in the Credit Act being applied to all Buy Now 19 00:01:10,260 --> 00:01:13,890 Sean Alymer: Pay Later credit providers. A lot in that. I wanted 20 00:01:13,890 --> 00:01:16,080 Sean Alymer: to speak to one of the main operators in Australia 21 00:01:16,080 --> 00:01:18,600 Sean Alymer: to find out what the appetite is like for greater 22 00:01:18,600 --> 00:01:22,260 Sean Alymer: regulation and which of these options probably suit best. Cynthia 23 00:01:22,260 --> 00:01:25,410 Sean Alymer: Scott is a Managing Director Australia, New Zealand at Zip 24 00:01:25,410 --> 00:01:27,090 Sean Alymer: Co. Cynthia, welcome to FEAR & GREED. 25 00:01:27,420 --> 00:01:28,500 Cynthia Scott: Thanks Sean. It's great to be here. 26 00:01:28,890 --> 00:01:30,930 Sean Alymer: You've had a very busy 24 hours, I would imagine. 27 00:01:31,200 --> 00:01:33,270 Cynthia Scott: We have indeed had a busy 24 hours. This is 28 00:01:33,270 --> 00:01:35,670 Cynthia Scott: a really important topic and we're pleased to be talking 29 00:01:35,670 --> 00:01:35,970 Cynthia Scott: about it. 30 00:01:36,390 --> 00:01:40,170 Sean Alymer: Look, Zip has always been pretty upfront about supporting regulations. 31 00:01:40,170 --> 00:01:43,500 Sean Alymer: Some of your competitors haven't been quite so upfront about 32 00:01:43,500 --> 00:01:46,589 Sean Alymer: it, but it needs to be fit for purpose is 33 00:01:46,590 --> 00:01:48,780 Sean Alymer: your argument. What does fit for purpose look like? 34 00:01:49,470 --> 00:01:51,330 Cynthia Scott: You know, that's right, Sean. So we firmly believe that 35 00:01:51,330 --> 00:01:53,700 Cynthia Scott: the Buy Now Pay Later industry is ready for regulation 36 00:01:54,030 --> 00:01:55,920 Cynthia Scott: and in fact, we've been working with Treasury over the 37 00:01:55,920 --> 00:01:59,160 Cynthia Scott: last couple of months and we endorse any changes that 38 00:01:59,160 --> 00:02:02,100 Cynthia Scott: are proposed from a regulatory perspective that will give consumers 39 00:02:02,100 --> 00:02:05,430 Cynthia Scott: greater confidence when they use these products. The thing is 40 00:02:05,430 --> 00:02:07,680 Cynthia Scott: that what separates Zip from others in the industry, and 41 00:02:07,680 --> 00:02:10,080 Cynthia Scott: as you point out, we do have a slightly different 42 00:02:10,080 --> 00:02:13,919 Cynthia Scott: perspective on this from other participants, is that we've already 43 00:02:13,919 --> 00:02:18,299 Cynthia Scott: operated and we have since 2013, operated above the minimum 44 00:02:18,300 --> 00:02:21,660 Cynthia Scott: standards required. So we fully do support for the regulation 45 00:02:21,660 --> 00:02:22,260 Cynthia Scott: of the industry. 46 00:02:23,130 --> 00:02:27,840 Sean Alymer: Of these options, the first one is strengthening the Buy Now Pay 47 00:02:27,840 --> 00:02:31,830 Sean Alymer: Later industry code plus an affordability test is fairly light 48 00:02:31,830 --> 00:02:36,000 Sean Alymer: on. The third one, which is basically being regulated under 49 00:02:36,000 --> 00:02:39,899 Sean Alymer: the Credit Act and sort of responsible lending obligations being 50 00:02:40,290 --> 00:02:43,620 Sean Alymer: applied to all Buy Now Pay Later credit. Is there 51 00:02:43,620 --> 00:02:45,990 Sean Alymer: one or other you'd prefer? Is the middle one the 52 00:02:45,990 --> 00:02:49,019 Sean Alymer: way to go? What do you think? Because the treasurer yesterday 53 00:02:49,020 --> 00:02:52,829 Sean Alymer: was quite clear that he was thinking more about the 54 00:02:52,830 --> 00:02:54,959 Sean Alymer: latter, the regulation area. 55 00:02:55,380 --> 00:02:58,200 Cynthia Scott: Yeah, that's right. Well, from our perspective, given our operating 56 00:02:58,200 --> 00:03:02,340 Cynthia Scott: procedures are already consistent largely with all three, we would 57 00:03:02,340 --> 00:03:05,010 Cynthia Scott: be in a position to continue to operate our business 58 00:03:05,100 --> 00:03:08,880 Cynthia Scott: whether option one, two or three is chosen by Treasury. 59 00:03:09,389 --> 00:03:12,000 Cynthia Scott: As you say, option one is really just a small 60 00:03:12,000 --> 00:03:15,810 Cynthia Scott: extension of the current industry code of practice that we 61 00:03:15,810 --> 00:03:19,320 Cynthia Scott: signed up to in 2021, and it would just be 62 00:03:19,320 --> 00:03:23,010 Cynthia Scott: bringing that into force with some more regulation. But I 63 00:03:23,010 --> 00:03:27,840 Cynthia Scott: think realistically, certainly from Zips perspective, we would support greater 64 00:03:27,840 --> 00:03:31,080 Cynthia Scott: regulation than that. So requiring that all Buy Now Pay Later 65 00:03:31,530 --> 00:03:36,030 Cynthia Scott: participants hold an Australian credit license and conduct credit checks 66 00:03:36,060 --> 00:03:39,720 Cynthia Scott: and conduct affordability assessments, as you mentioned, is something that 67 00:03:39,720 --> 00:03:43,980 Cynthia Scott: we've been quite vocal about supporting since we've been in 68 00:03:43,980 --> 00:03:49,440 Cynthia Scott: business, but particularly since the Senate inquiry into regulation in 2019. 69 00:03:50,460 --> 00:03:53,490 Sean Alymer: Okay, so you've been following that process, in a sense 70 00:03:53,490 --> 00:03:55,470 Sean Alymer: is the point that if Zip Co's doing it it's 71 00:03:55,470 --> 00:03:58,410 Sean Alymer: fine, but what this will do is weed out some 72 00:03:58,410 --> 00:04:00,869 Sean Alymer: of the lesser operators for one of a better term. 73 00:04:01,950 --> 00:04:03,660 Cynthia Scott: Well, I think what separates Zip is, as you said, 74 00:04:03,660 --> 00:04:05,790 Cynthia Scott: Sean, is that we have been operating in this manner 75 00:04:05,790 --> 00:04:09,720 Cynthia Scott: since 2013, and that's because our first product in market 76 00:04:09,720 --> 00:04:12,840 Cynthia Scott: was Zip Money, which is a fully regulated product under 77 00:04:12,840 --> 00:04:17,310 Cynthia Scott: the NCCPA and under our requirements of that product, we 78 00:04:17,310 --> 00:04:21,660 Cynthia Scott: do conduct identity checks and affordability checks and credit assessments. 79 00:04:21,870 --> 00:04:24,599 Cynthia Scott: So when we established Zip Pay, which is our Buy 80 00:04:24,600 --> 00:04:27,419 Cynthia Scott: Now Pay Later like product, it's not a paying for, 81 00:04:27,420 --> 00:04:30,060 Cynthia Scott: but it doesn't charge customers any interest so it is 82 00:04:30,060 --> 00:04:32,969 Cynthia Scott: considered a Buy Now Pay Later. When we established that 83 00:04:32,970 --> 00:04:38,820 Cynthia Scott: product, we used almost identical processes and procedures for acquiring 84 00:04:38,820 --> 00:04:43,380 Cynthia Scott: customers and assessing credit. So we do conduct identity checks 85 00:04:43,380 --> 00:04:47,640 Cynthia Scott: and credit checks and affordability assessments. And so from our 86 00:04:47,640 --> 00:04:51,210 Cynthia Scott: perspective, we've been operating for nearly 10 years above the 87 00:04:51,210 --> 00:04:55,080 Cynthia Scott: minimum required standards. So we have evidence that it is 88 00:04:55,080 --> 00:04:58,170 Cynthia Scott: absolutely possible to have a sustainable business model with this 89 00:04:58,170 --> 00:05:01,529 Cynthia Scott: level of consumer protection. And given that the industry is 90 00:05:01,529 --> 00:05:05,160 Cynthia Scott: now really maturing and the product is maturing and there's 91 00:05:05,220 --> 00:05:07,859 Cynthia Scott: millions of customers using this product, we do think that 92 00:05:07,860 --> 00:05:10,980 Cynthia Scott: the time's right to actually regulate the product more broadly 93 00:05:10,980 --> 00:05:11,789 Cynthia Scott: across the industry. 94 00:05:12,330 --> 00:05:14,550 Sean Alymer: Stay with me, Cynthia, we'll be back in a minute. 95 00:05:20,400 --> 00:05:23,790 Sean Alymer: I'm speaking to Cynthia Scott, Managing Director Australia, New Zealand 96 00:05:23,850 --> 00:05:27,839 Sean Alymer: at Zip Co. Okay. So if we have regulation, how 97 00:05:27,839 --> 00:05:31,830 Sean Alymer: many other operators do you think would fit under the 98 00:05:31,830 --> 00:05:34,050 Sean Alymer: Credit Act as they operate today? 99 00:05:34,529 --> 00:05:36,779 Cynthia Scott: Well, I can't speak for, I think as I understand 100 00:05:36,779 --> 00:05:39,570 Cynthia Scott: it, there's about 20 providers of Buy Now Pay Later 101 00:05:39,990 --> 00:05:44,790 Cynthia Scott: credit products or Buy Now Pay Later products in Australia. As far as I'm aware, 102 00:05:45,420 --> 00:05:48,029 Cynthia Scott: we have an Australian credit license for our Zip Money 103 00:05:48,029 --> 00:05:50,790 Cynthia Scott: product, and we made the decision to operate our Zip 104 00:05:50,850 --> 00:05:54,029 Cynthia Scott: Pay product in a similar manner, but I'm not aware 105 00:05:54,029 --> 00:05:57,210 Cynthia Scott: of others who are operating in the same way. So 106 00:05:57,630 --> 00:06:02,580 Cynthia Scott: the provision of credit checks and affordability assessments is something 107 00:06:02,580 --> 00:06:05,460 Cynthia Scott: that we really strongly believe that the industry should do. 108 00:06:05,460 --> 00:06:09,180 Cynthia Scott: So the uplift required from our perspective is not large, 109 00:06:09,360 --> 00:06:11,909 Cynthia Scott: but I acknowledge that for others it would require a 110 00:06:11,910 --> 00:06:14,400 Cynthia Scott: change to their operating procedures and in some cases their 111 00:06:14,400 --> 00:06:15,450 Cynthia Scott: business models as well. 112 00:06:15,900 --> 00:06:19,020 Sean Alymer: Okay. Other jurisdictions are talking about regulating Buy Now Pay 113 00:06:19,020 --> 00:06:24,180 Sean Alymer: Later, the UK, New Zealand are both examples. Because you 114 00:06:24,510 --> 00:06:26,849 Sean Alymer: operate internationally, is it the sort of thing where it would 115 00:06:26,850 --> 00:06:30,420 Sean Alymer: actually be quite good if they all got together and 116 00:06:30,420 --> 00:06:35,010 Sean Alymer: so you didn't have two different regimes in different jurisdictions? 117 00:06:35,010 --> 00:06:38,760 Sean Alymer: I mean, obviously it's going to be somewhat different, but 118 00:06:39,060 --> 00:06:42,690 Sean Alymer: wouldn't it be helpful if those regimes kind of work together? 119 00:06:43,290 --> 00:06:46,320 Cynthia Scott: Well, I think the way to think about this is 120 00:06:46,320 --> 00:06:49,620 Cynthia Scott: that Buy Now Pay Later as an innovation in financial services 121 00:06:49,620 --> 00:06:53,190 Cynthia Scott: started in Australia and therefore we've been operating this product 122 00:06:53,279 --> 00:06:56,610 Cynthia Scott: for the longest globally. And so it is logical that 123 00:06:56,610 --> 00:06:58,859 Cynthia Scott: the Australian market would take the lead when it comes 124 00:06:58,860 --> 00:07:03,779 Cynthia Scott: to regulation of the product and consumer protections because the 125 00:07:03,779 --> 00:07:05,940 Cynthia Scott: market has already grown and matured over the last 10 126 00:07:05,940 --> 00:07:09,450 Cynthia Scott: years. You're right, the UK, New Zealand and the US 127 00:07:09,480 --> 00:07:12,480 Cynthia Scott: are also looking at the regulatory environment and how they 128 00:07:12,480 --> 00:07:15,000 Cynthia Scott: should regulate the products. But I will say there are 129 00:07:15,000 --> 00:07:18,630 Cynthia Scott: differences in the products, the way the products are constructed 130 00:07:18,990 --> 00:07:23,370 Cynthia Scott: from Zips perspective in Australia versus products in New Zealand 131 00:07:23,430 --> 00:07:25,800 Cynthia Scott: and the UK and the US for example. So there 132 00:07:25,800 --> 00:07:30,630 Cynthia Scott: will always be nuances depending on the geography, but I 133 00:07:30,630 --> 00:07:34,260 Cynthia Scott: think consistency of regulation globally certainly makes sense and that's 134 00:07:34,260 --> 00:07:36,360 Cynthia Scott: something that we've seen in other industries. So it would 135 00:07:36,360 --> 00:07:38,280 Cynthia Scott: be something that we would certainly support. 136 00:07:39,150 --> 00:07:42,300 Sean Alymer: What's the consultation process been like with Treasury during this? 137 00:07:42,780 --> 00:07:45,450 Cynthia Scott: Oh, so we've been actively involved with Treasury for some 138 00:07:45,450 --> 00:07:48,720 Cynthia Scott: months now. So Treasury were very proactive in approaching the 139 00:07:48,720 --> 00:07:52,050 Cynthia Scott: major participants and seeking our feedback. So we've had a 140 00:07:52,050 --> 00:07:54,690 Cynthia Scott: very strong working relationship with Treasury over the last few 141 00:07:54,690 --> 00:07:57,840 Cynthia Scott: months and we'll of course be providing a submission in 142 00:07:57,840 --> 00:08:00,420 Cynthia Scott: response to this options paper over the next couple of 143 00:08:00,420 --> 00:08:03,090 Cynthia Scott: weeks. But as I said at the outset, our perspective 144 00:08:03,090 --> 00:08:06,900 Cynthia Scott: is really that regulation that protects consumers is good, and 145 00:08:06,900 --> 00:08:10,950 Cynthia Scott: regulation that gives consumers greater confidence in using these products 146 00:08:10,950 --> 00:08:13,830 Cynthia Scott: that we know that they love is the positive thing. 147 00:08:13,830 --> 00:08:16,410 Cynthia Scott: So from our perspective, we'll be giving our feedback on 148 00:08:16,410 --> 00:08:18,930 Cynthia Scott: the three options and we look forward to the outcome 149 00:08:18,990 --> 00:08:19,680 Cynthia Scott: early next year. 150 00:08:20,310 --> 00:08:23,160 Sean Alymer: As a product, it's gotten a bit of a bad 151 00:08:23,160 --> 00:08:26,100 Sean Alymer: rap in more recent times. I think it was Asic, I 152 00:08:26,100 --> 00:08:27,960 Sean Alymer: may be wrong on that, but they had a survey 153 00:08:27,960 --> 00:08:30,600 Sean Alymer: that said about one in five Buy Now Pay Later 154 00:08:30,600 --> 00:08:33,569 Sean Alymer: customers said they had to cut back or go without 155 00:08:33,570 --> 00:08:37,500 Sean Alymer: essentials to make repayments. Is that typical of what you 156 00:08:37,500 --> 00:08:40,590 Sean Alymer: are seeing or is that typical of the industry as a whole? 157 00:08:41,640 --> 00:08:43,709 Cynthia Scott: See here again, Sean. I think this is what separates 158 00:08:43,710 --> 00:08:46,290 Cynthia Scott: Zip. Because we do do credit checks and we do 159 00:08:46,290 --> 00:08:50,970 Cynthia Scott: affordability assessments. So 90% of our customers link their banks, 160 00:08:50,970 --> 00:08:54,720 Cynthia Scott: which means we can actually see their transactional data. So for 161 00:08:55,020 --> 00:08:57,809 Cynthia Scott: all customers who make an application to Zip, we can 162 00:08:57,809 --> 00:09:01,020 Cynthia Scott: see their income, we can see their expenses, whether they've 163 00:09:01,020 --> 00:09:04,170 Cynthia Scott: got other credit products, credit cards, other Buy Now Pay 164 00:09:04,170 --> 00:09:07,260 Cynthia Scott: Later, et cetera. And so we haven't seen evidence of 165 00:09:07,380 --> 00:09:09,810 Cynthia Scott: those statistics that you are referring to in terms of 166 00:09:10,380 --> 00:09:13,679 Cynthia Scott: late payments and also people going without. I mean, our 167 00:09:13,679 --> 00:09:18,390 Cynthia Scott: customers certainly love using Zip products for everyday purchases and 168 00:09:18,390 --> 00:09:22,110 Cynthia Scott: to balance their expenses and smooth their budgets over time. 169 00:09:22,440 --> 00:09:25,170 Cynthia Scott: But I will say again, I think because we are 170 00:09:25,200 --> 00:09:29,340 Cynthia Scott: perhaps more rigorous around our credit assessment, I acknowledge that 171 00:09:29,340 --> 00:09:33,210 Cynthia Scott: our approval rates would be lower than our peers or 172 00:09:33,210 --> 00:09:35,730 Cynthia Scott: lower than our competitors. But that's something that we're very 173 00:09:35,730 --> 00:09:39,630 Cynthia Scott: comfortable with. So from our perspective, if a customer applies 174 00:09:39,900 --> 00:09:42,150 Cynthia Scott: for an account with Zip and we don't think that 175 00:09:42,150 --> 00:09:45,630 Cynthia Scott: they've got the ability to afford to repay, then we 176 00:09:45,630 --> 00:09:48,300 Cynthia Scott: will decline them. So as a result, through the course 177 00:09:48,300 --> 00:09:52,110 Cynthia Scott: of this year, our rates of declining customers has increased 178 00:09:52,290 --> 00:09:53,819 Cynthia Scott: and that's something that we're comfortable with. 179 00:09:55,320 --> 00:09:57,870 Sean Alymer: Where does the Buy Now Pay Later sector end up 180 00:09:57,870 --> 00:09:59,969 Sean Alymer: in five years time? So let's say we do get 181 00:09:59,970 --> 00:10:03,900 Sean Alymer: increased regulation, we obviously have the sale of after pay 182 00:10:03,900 --> 00:10:07,230 Sean Alymer: to block, you are another one of the big providers. You 183 00:10:07,230 --> 00:10:09,660 Sean Alymer: said there were 20 Buy Now Pay Later operators in 184 00:10:09,660 --> 00:10:12,600 Sean Alymer: this country. Far too many to be sustainable. No one's 185 00:10:12,600 --> 00:10:14,400 Sean Alymer: going to argue that, I don't think. But where do 186 00:10:14,400 --> 00:10:17,340 Sean Alymer: you think we do end up in five years time? 187 00:10:17,670 --> 00:10:20,400 Sean Alymer: And I'm kind of interested in your take because I 188 00:10:20,400 --> 00:10:23,040 Sean Alymer: always think of Buy Now Pay Later as a competitor 189 00:10:23,100 --> 00:10:25,890 Sean Alymer: to a credit card or something like that. Is that 190 00:10:25,890 --> 00:10:28,589 Sean Alymer: where it continues to flow? How do you think it evolves? 191 00:10:28,980 --> 00:10:31,920 Cynthia Scott: That's a good question. I think that regulations actually going 192 00:10:31,920 --> 00:10:35,280 Cynthia Scott: to provide even greater demand for Buy Now Pay Later 193 00:10:35,280 --> 00:10:37,980 Cynthia Scott: products because we know that consumers are looking for fair 194 00:10:37,980 --> 00:10:42,660 Cynthia Scott: and transparent ways and flexible ways to make payments, to 195 00:10:42,660 --> 00:10:45,839 Cynthia Scott: transact, and to balance their budget. So we actually think 196 00:10:45,840 --> 00:10:50,339 Cynthia Scott: that providing stronger guardrails for consumers will increase demand for 197 00:10:50,340 --> 00:10:53,160 Cynthia Scott: Buy Now Pay Later. We know from the research that 198 00:10:53,160 --> 00:10:56,219 Cynthia Scott: we've done and that we've seen that 48% of Buy 199 00:10:56,220 --> 00:10:58,890 Cynthia Scott: Now Pay Later users don't have a credit card. They 200 00:10:59,880 --> 00:11:02,939 Cynthia Scott: don't want to take on credit where they are at 201 00:11:03,150 --> 00:11:05,730 Cynthia Scott: risk of having to pay interest. And so there is 202 00:11:05,730 --> 00:11:08,370 Cynthia Scott: real demand in Australia for Buy Now Pay Later. So 203 00:11:08,370 --> 00:11:11,400 Cynthia Scott: actually I think over the next five years we're likely 204 00:11:11,400 --> 00:11:15,179 Cynthia Scott: to see Buy Now Pay Later really embedded as a credit product 205 00:11:15,179 --> 00:11:16,650 Cynthia Scott: of choice for many consumers. 206 00:11:17,429 --> 00:11:19,620 Sean Alymer: With fewer players, do you think? 207 00:11:19,620 --> 00:11:21,929 Cynthia Scott: I think any industry that's got 20 players is open 208 00:11:21,929 --> 00:11:24,210 Cynthia Scott: for consolidation, without a doubt. Yes. 209 00:11:24,210 --> 00:11:26,400 Sean Alymer: Fair enough. Cynthia, thank you for talking to Fear & Greed. 210 00:11:27,000 --> 00:11:27,211 Cynthia Scott: Thank you. My pleasure. 211 00:11:27,211 --> 00:11:32,190 Sean Alymer: That Cynthia Scott, Managing Director Australia, New Zealand at Zip 212 00:11:32,190 --> 00:11:34,620 Sean Alymer: Co. This is the Fear & Greed Daily interview. Join us 213 00:11:34,620 --> 00:11:37,230 Sean Alymer: every morning for the full episode of Fear & Greed, Australia's 214 00:11:37,230 --> 00:11:40,800 Sean Alymer: most popular business podcast. I'm Sean Aylmer. Enjoy your day.