The buy now, pay later sector has been in trouble for a while now as regulations tighten. Openpay has phoned it in amidst various funding issues.
Openpay has become the first ASX listed BNPL service to collapse. Launched in 2013, the fintech company offered cash flow management on large purchases in healthcare, home, and automotive areas rather than everyday purchases. In 2019, the company went public on the ASX. It had not turned a profit since then with its latest report showing over $18 million in operating losses.
Last week showed indication the company was in trouble with a market announcement requesting a trading halt on February 1. The voluntary suspension was a result of a non-payment placing the company in breach of covenants in loan agreements. Openpay halted trading on Wednesday with a share price of just 20 cents. On Monday, director Yaniv Meydan stepped down and Barry Kogan, Jonathan Henry and Rob Smith, partners of McGrathNicol were appointed Joint and Several Receivers and Managers to determine who would be paid – and how.
According to yesterday’s market announcement the receivers and managers will work closely with Openpay’s employees, merchants and customers to urgently determine the appropriate strategy for the business. While customers can no longer use the Openpay platform for new purchases, they still required to pay any outstanding balances in accordance with their existing agreements.
In mid 2022, the Assistant Treasurer and Minister for Financial Services, the Hon Stephen Jones MP, announced the Australian Government’s intention to publicly consult on improving the regulation of consumer credit in Australia. In November, the Treasury began a consultation process in which three options were identified for public consideration of regulatory intervention.
- Option one: Strengthening the BNPL Industry Code plus an affordability test. This option will impose a bespoke affordability assessment for BNPL providers under the Credit Act and address any other regulatory gaps in a strengthened Industry Code to make it fit-for purpose.
- Option two: Limited BNPL regulation under the Credit Act. This approach would require BNPL providers to obtain and maintain an ACL, plus introduce modified Responsible Lending Obligations (RLOs) under the Credit Act to determine unsuitability, combined with a strengthened Industry Code.
- Option three: Regulation of BNPL under the Credit Act, with full RLOs. Under this option, BNPL providers would need to obtain and maintain an ACL. The existing RLOs in the Credit Act will be applied to all BNPL credit, including requirements around reasonable inquiries into a consumer’s financial situation and taking reasonable steps to verify this information
At this stage, the Treasury is in the process of undertaking targeted consultations with consumer groups, industry bodies, BNPL providers and regulators in the coming months. The findings of the process will inform a government decision on the future regulatory arrangements of BNPL in Australia.
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