Afterpay plans to introduce credit checks and credit reporting. File photo. Photo: Afterpay
Shoppers may find it harder to borrow money from buy now pay later (BNPL) providers over the coming months, one banking expert is warning.
From 2 September, BNPL providers will be required to credit check borrowers, and report to credit agencies.
Afterpay said it would introduce credit checks from this week and credit reporting from next month.
Head of international policy Michael Saadat said New Zealand would be the first country with BNPL regulations of that sort, but Afterpay hoped that other countries would follow.
He said the "big change" for customers would be the credit check requirement.
Instead of an automatic $600 limit for new borrowers, which was then adjusted as they developed a history of using the platform, the limit that borrowers were offered would be linked to their credit score.
There would also be credit checks before a borrower's limit was increased.
But KPMG banking expert John Kensington said he expected the changes to slow the BNPL market.
"They'll probably be saying no to a few people they wouldn't have said no to six months ago. Right now, if you want into a store and you didn't have enough in your eftpos card, and your credit card declined, you could put it on BNPL.
"The store owner might be unwise to do so but if you went into another store you could, that shouldn't be the case now because there should be limits and tracking of people."
Centrix data show buy now pay later arrears up slightly in June, to 8.8 percent of accounts but down in July to 8.3 percent.
Afterpay does not charge interest but charges customers when they miss a payment. The maximum fee charged is $68.
It was reported that Afterpay had A$475 million in bad debts in the 18 months to December 2022. But Block, of which Afterpay is now part, said last year that the company's bad debts were "under control".
Sadaat said the level of customer arrears had remained steady recently despite the economic downturn.
In the December quarter, Afterpay reported that 96 percent of payments were made on time. There were 24 million Afterpay customers around the world. Afterpay said in the first quarter of this year, 95 percent of payments were made on time.
"We think that's largely because of the way we design the product. If you miss a payment, we don't let you spend again until you're up-ot-date with payments."
New Zealand's BNPL space has lost a number of players recently, including high-profile Laybuy.
Sadaat said spending growth on the Afterpay platform was up 25 percent and customers were still engaging with the product. "The product has become much more mainstream… it continues to be a very competitive market. Banks are now offering BNPL and there are other big tech businesses doing it as well."
Kensington said there could be more amalgamation in the sector but it could also be the case that more platforms would enter the market as interest rates fell. He said many of Afterpay's target customers had less disposable income to spend due to the cost-of-living pressures, but when the situation improved it could become apparent that New Zealand had fallen behind in the range of products available.