Of course the regulators aren't doing their job in the name of free market. Just as We Work was allowed to become a potential single point of failure in US representing a systemic risk to the property and banking sector. We allow then caution it as a risk. When a crisis finally comes due to this neglect, authorities will scramble to "fix it" or address it superficially , only for the next risky adventure to rear its head in a few years - as student loan asset backed (SLAB) securitisation has replaced the mortgage asset back securitisation that created the CDO (collaterised debt obligation) crisis during the GFC. RBA Warns Of Buy Now, Pay Later Platform Risks
The buy now, pay later financial services have soared in popularity throughout recent years.
But according to an internal Reserve Bank memo, the delayed payment services are starting to represent a risk to financial stability, with players taking advantage of ‘gaps’ in consumer lending laws.
The memo was prepared in March 2019 but released under Freedom of Information laws this Wednesday, reports The Australian.
In it, the RBA warned that buy now, pay later services were ‘yet to be tested in a downturn’ and made rising unemployment vulnerable.
The warnings come during a time of rapid growth in the delayed payments industry, impacting companies such as Afterpay, Zip Co and Latititude Pay.
Major banks, including Commonwealth, are examining their own schemes in result of their success.
The RBA also noted it is following the impact of buy now, pay later services but will focus on inefficiencies around the cost of payments being present in the system.
Another key concern for the RBA is retailers’ inability to recoup high transaction costs through surcharges and a potential for the trend to slip into established card schemes.
The Australian reported the confidential memo warned it was ‘not convinced all consumers understand the risks’ of the platforms, and that the growing trend created indebted customers.
But the memo wasn’t all about risks – it noted that consumers without access to credit cards could benefit from the buy now, pay later services.
