National

Australia’s BNPL Reset: Why fintech founders must rethink growth

Harsh Thakrar

May 21, 2026 2:42 PM IST

Category National

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Synopsis

In 2021, a 24-year-old shopper in Sydney could walk into a store, split a A$200 purchase into four fortnightly payments using Afterpay, and walk out in minutes – no credit card, no interest, no…

In 2021, a 24-year-old shopper in Sydney could walk into a store, split a A$200 purchase into four fortnightly payments using Afterpay, and walk out in minutes – no credit card, no interest, no questions asked.

That same financial year, Afterpay processed roughly A$21 billion in underlying sales for 16.2 million active customers globally, all while sitting outside Australia’s National Credit Code. A few months later, Block paid US$29 billion in stock to acquire it.

That moment captured the essence of Buy Now, Pay Later (BNPL): frictionless, fast, and seemingly outside the traditional rules of finance.

By 2025, the same transaction sits in a very different world.

On 10 June 2025, Australia’s Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Act 2024 came into force, formally extending the National Consumer Credit Protection Act to BNPL contracts. Every third-party BNPL provider operating in the country like Afterpay, Zip, Humm, and the rest, now needs an Australian Credit Licence (ACL) and AFCA membership to continue trading.

It is the most consequential reset of consumer credit regulation Australia has seen in a decade. But the rule change was only the starting gun. Almost a year in, the bigger story is what’s already happening because of it.

When “Not Quite Credit” Becomes Credit

The success of BNPL was built on a subtle but powerful distinction, it didn’t look or feel like a loan.

Consumers weren’t charged interest. Approvals were instant. The experience felt closer to a checkout feature than a financial decision.

That positioning let companies like Afterpay and Zip scale rapidly. By mid-2023, the Australian Finance Industry Association reported around 5.2 million active BNPL accounts and an annual transaction value approaching A$20 billion. KPMG and ASIC data suggests roughly one in three Australians has now used BNPL at least once, with online channels accounting for nearly 70% of activity. That distinction is now gone.

Under ASIC’s Regulatory Guide 281, published on 8 May 2025, most BNPL products are classified as 

“Low-Cost Credit Contracts” (LCCCs), a new category sitting inside the Credit Code. Providers must:

• Hold an Australian Credit Licence with the appropriate authorisations
• Become members of AFCA, the Australian Financial Complaints Authority
• Comply with modified responsible lending obligations, including mandatory inquiries into a consumer’s income, expenditure, and credit history
• Operate within statutory fee caps set under Regulation 69G of the NCCP Regulations

The language may still be “low-cost credit,” but the implications are unmistakable.

BNPL is no longer adjacent to finance, it is finance.

From Rule Change to Real Enforcement

A new regime on paper is one thing. The enforcement posture behind it is another, and that is where the picture has sharpened.

On 13 November 2025, ASIC released its 2026 enforcement priorities. Two of them sit directly over the BNPL sector: “predatory lending practices targeting people in financial difficulty,” and “conduct involving a high risk of significant consumer harm, particularly conduct targeting financially vulnerable consumers.”

Deputy Chair Sarah Court noted that in the prior twelve months, ASIC had doubled the number of new investigations it opened and nearly doubled the number of new matters filed in court.

This matters for BNPL providers because the rules they now sit under come with teeth. From 10 June 2025, BNPL providers also became subject to the financial hardship obligations under Section 72 of the National Credit Code, the same provisions that drove ASIC’s recent multi-million-dollar actions against Westpac and NAB for hardship-handling failures.

Civil penalties for individual contraventions can reach A$16.5 million, or 10% of annual turnover, whichever is greater. For a sector built on automated, app-first workflows, the message from the regulator is unambiguous: a glitch in the hardship pipeline is not a technical issue, it is a licence-condition breach.

Adjacent reforms are tightening the squeeze further. The Reserve Bank of Australia’s July 2025 consultation on payments regulation proposed cutting the domestic credit card interchange cap from 0.80% to 0.30%, a move that, if implemented, narrows the merchant-economics arbitrage that BNPL has historically relied on.

Treasury’s Payments System Modernisation reforms, now in consultation, will reshape the broader payments stack in which BNPL operates.

In other words, the new regime didn’t just commence. It set the stage for an enforcement cycle that is now visibly underway.

The End of Frictionless Growth

For founders, the most immediate impact is not legal, it’s economic.

BNPL’s early growth was powered by simplicity. Afterpay’s risk model historically relied on transaction-level signals, order value, debit card balance, account tenure, rejecting roughly 20% of transactions and writing off less than 1% of sales in 2020. Volume was the moat. Faster onboarding meant better conversion. Higher approval rates meant better funnel economics.

Regulation reintroduces friction.

Customer assessments, even in their modified LCCC form, take time. Approval processes become more selective. Compliance introduces both cost and complexity into what was once a lightweight operating model.

Growth is no longer driven purely by user acquisition. It is constrained, and shaped by risk management.

A Business Model Under Pressure

Consider how the underlying economics begin to change.

BNPL providers have traditionally relied on merchant fees of 4% to 7% per transaction (compared with 1% to 1.5% for card processing), supplemented by late fees and repeat usage. The thesis was that high volumes and modest defaults would sustain the model.

That thesis was already under stress before the new rules. Zip Co’s bad debts quadrupled in 2022, and Afterpay reported a roughly 50% jump in expected credit losses during the same period. By the end of 2023, two notable Australian players had already exited: LatitudePay shut down in April 2023, and Openpay, once an ASX-listed darling, entered receivership in February 2023 before delisting that August, with its B2B platform sold off for just A$10 million.

With fee caps now binding and lending standards tightening, margins compress further. Customer acquisition becomes more expensive. Approval rates decline. Operational costs rise.

What emerges is a very different business: less a tech platform, more a disciplined lending operation.

For startups entering this space today, the question is no longer “Can we scale quickly?” It is “Can we build a profitable credit business from day one?”

Why Regulation Favours the Big Players

There is another dynamic at play, one that is less visible but equally important.

Regulation tends to reward those who are already equipped to handle it.

In the Australian market, fintech pioneers held roughly 81% of BNPL share in 2025, with Afterpay alone serving around 3.5 million local users and benefiting from Block’s balance-sheet depth. Globally, Afterpay’s Q3 2024 Gross Payments Volume hit US$8.24 billion, up 23% year-on-year, with 24 million active customers across 348,000 merchants. These incumbents have spent years building data infrastructure, compliance systems, and institutional relationships. For them, RG 281 is a challenge, but a manageable one.

For smaller startups, it’s a different story.

Compliance is not just a checklist; it is infrastructure. ACL applications, AFCA membership, written unsuitability assessment policies, target market determinations, and ongoing reporting all carry fixed costs that don’t scale down for early-stage companies.

This creates a natural filtering effect.

Some startups will partner with licensed entities. Others will pivot into adjacent areas. Many will find that competing directly in consumer BNPL is no longer viable. The market, once wide open, begins to narrow.

Where the Smart Money and Smart Founders Are Moving

What’s emerging in response is not retreat, but repositioning.

Rather than building standalone BNPL products, founders are embedding credit into broader ecosystems. E-commerce platforms, vertical SaaS, and marketplaces are becoming the new distribution channels for financing. Even traditional banks are leaning in: Commonwealth Bank’s StepPay leverages an existing licence, customer base, and risk infrastructure that no startup can replicate cheaply, and banks are projected to be the fastest-growing BNPL channel in Australia, at roughly 17% CAGR through 2031.

Sector verticalisation is accelerating in parallel. In April 2025, Splitit expanded its white-label BNPL service into Australian healthcare practice-management systems, a vertical where average ticket sizes are higher and price-sensitivity differs from fashion retail. Healthcare and wellness BNPL globally is forecast to grow at close to 30% CAGR, well above the broader market.

At the same time, there is growing interest in the infrastructure layer:

• Risk and underwriting engines
• Compliance-as-a-service platforms
• APIs that connect fintechs with regulated institutions

These are businesses that don’t fight regulation, they benefit from it.

The competitive edge is shifting toward data. As lending decisions become central to the model, the ability to assess risk intelligently becomes far more valuable than the ability to acquire users quickly.

Investors Are Rewriting the Playbook

For investors, BNPL is no longer a pure growth narrative.

It is being re-evaluated as a credit business, one where fundamentals matter.

Metrics like user growth and transaction volume are giving way to credit quality, default rates, cost of compliance, and sustainable unit economics. Even the largest players are signalling the shift: Zip has explicitly pivoted from “growth at all costs” to disciplined underwriting, with cash EBITDA improving and bad-debt ratios falling, even as ANZ transaction volumes have moderated.

Capital is becoming more selective, and more disciplined.

A Signal of FinTech’s Next Phase

Australia’s move is not happening in isolation. It reflects a broader global shift, one that is now visibly cascading across jurisdictions: fintech is being absorbed into the financial system it once disrupted.

• In the United Kingdom, the FCA will bring third-party BNPL into formal consumer credit regulation as Deferred Payment Credit from mid-2026, after the sector hit £27.1 billion in transaction value in 2025 with around 10.9 million British adults (~20%) using it in the prior year.
• In the European Union, the revised Consumer Credit Directive (CCD II) eliminates the short-term, interest-free exemption that BNPL providers previously relied on; member states had to transpose it by end-2025, with full enforcement by Q4 2026.
• In the United States, the picture is more fragmented: the CFPB withdrew its 2024 interpretive rule in May 2025, but state-level frameworks are stepping into the gap, with New York introducing licensing requirements for BNPL providers.

Globally, BNPL gross merchandise value reached approximately US$560 billion in 2025 (up 13.7% year-on-year), with provider revenues estimated at US$45 billion. Roughly 41% of BNPL users in major markets reported missing at least one payment in the past year, up from 34% twelve months earlier. The growth story remains intact, but the risk picture is no longer hidden.

The early wave of fintech innovation often thrived on regulatory gaps. The next wave will be defined by how well companies operate within regulatory frameworks.

In that sense, BNPL is not an exception. It is an early indicator.

Final Thought

BNPL hasn’t failed. It has matured.

What began as a frictionless alternative to credit is evolving into a regulated financial product, one that must balance innovation with responsibility.

For founders, this is the real takeaway. The advantage no longer lies in avoiding the system. It lies in understanding it deeply enough to build within it, without losing the user experience that made fintech compelling in the first place.

Those who can do both will not just survive this shift.

They will define what comes next.

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