BNPL’s rise in Australia drives identity theft to record high, data shows By Reuters

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© Reuters. FILE PHOTO: A logo of the Afterpay and Zip companies is seen in a store window in Sydney

By Byron Kaye SYDNEY (Reuters) – Identity theft complaints in Australia involving buy now pay later financing doubled to a record last year, data seen by Reuters showed, prompting calls for authorities to control the booming market. Australia is a global pioneer in Buy-Now-Pay-Later (BNPL) retail financing and home to several leading providers, including Afterpay Ltd, who have enjoyed strong transaction growth, elevated valuations and flexible regulation. However, a sharp increase in fraud complaints has raised doubts about soft supervision, which some analysts see as a key sector risk amid growing calls from advocates for greater consumer protections in the market of $ 4.3 billion. IDCare, a non-profit consumer support organization, experienced a record 1,600 incident reports involving BNPL products in Australia last year, double the previous year, data it prepared for Reuters showed. While credit card fraud complaints were four times that amount, BNPL’s rate of increase in fraud represents a huge demonstration for the seed money alternative. “What it really shows is how quickly criminals adapt to the fraud market and abuse the system,” said Moises Sanabria, IDCare interim managing director. IDCare is funded by various public and private sector institutions and acts as the leading support service for victims of identity theft in Australia. BNPL NO COMMITMENT firms lend buyers instant funds, usually up to a few thousand dollars, which can be paid in interest-free installments. Since they generally make money from merchant commissions and late fees, not interest payments, they circumvent the legal definition of credit and credit laws. That means BNPL providers are not required to perform background checks on new accounts, unlike credit card companies, and typically only ask for the applicant’s name, address, and date of birth, making it an easy target for fraud. The BNPL provider mentioned in the most complaints in the last three years was Zip Co Ltd, mentioned in 32.9% of customer interactions, IDCare data showed. Afterpay Ltd, Australia’s 12th largest company after a 16-fold increase in share price in one year, ranked third out of 17 and was named in 15.9% of BNPL complaints. The data did not include details such as how many complaints resulted in calls to police or regulators. It also did not include complaints made to agencies other than IDCare. Pandemic-related stimulus payments and tighter credit checks by traditional lenders partly drove the stellar growth at BNPL in 2020. But complaints grew in tandem, peaking in the three months to June 2020, right after Australia released billions of dollars in pandemic relief payments, according to IDCare. A Zip spokesperson said the company had conducted “ID and credit checks on all applicants from day one” to stop identity theft. He said “complaints to IDCare have grown because Zip has grown,” adding that its Australian customers had increased fivefold to 2.5 million by 2020. A representative for Afterpay said the company takes identity theft very seriously and uses tools like second factor authentication and account limitations when unusual activity is detected. But Sharon Vermeer, a Perth medical secretary, recounted how a family acquaintance opened an Afterpay account in her name in 2019 and then used it to fund a $ 2,100 Australian ($ 1,618) shopping spree that she only discovered when an agency of collections notified you of a loss. payment. “It’s so easy to open an account in someone else’s name … Unless you default, you will never know,” he said, adding that he needed to file police charges against the acquaintance to erase the default from his credit history. Afterpay did not respond to a query about the Vermeer case. REGULATORY RISK The rise of Australia’s BNPL has sparked a flurry of prices and has driven equity valuations to high earnings multiples. However, on that growth is the specter of stricter regulation. While lawmakers have so far held back on stricter regulation, mounting concerns about bad credit and now fraud could bolster the case for stronger protections. Last week, the British government said it would force BNPL’s suppliers to run credit checks to reduce bad debt. “Applying credit laws to BNPL, as the UK has recently done, would require these companies to ensure that their processes are effectively prevented against fraud,” said Gerard Brody, executive director of the UK Action Law Center. Australian consumer. The Australian Securities and Investments Commission (ASIC) declined to comment on the IDCare data. Andrew Bragg, a senator presiding over a parliamentary fintech inquiry, told Reuters lawmakers need to balance consumer protection with the need for innovation. “We want to see more options, more competition and buy-now-pay-later has been a good innovation and we have given ASIC important regulatory tools to protect consumers,” said Bragg, who will deliver the final report of the investigation. in April. ($ 1 = 1.2980 Australian dollars)