An opinion by Grant Halverson, CEO Financial Services, McLean Roche Pty Ltd.

In an article titled “Fintech Risk in 2021,” Halverson warns of heightened fintech risk in 2020 following free central bank “helicopter” money, overenthusiastic private equity and venture capital firms, and exuberant stock markets. In particular, he points to fintechs offering buy-now-pay-later (BNPL) products that have captured consumers’ fancy and encouraged them to increase their indebtedness. (LinkedIn)

Halverson makes the following points in his article.

BNPL: Regulatory oversight

• BNPL (apart from AML) is totally unregulated in Australia and New Zealand
• Who is on the hook for risk? Australian investors for listed BNPL fintechs, Australian banks for securitized debt, and investors such as venture capitalists for private BNPL players
• BNPL fintechs exploit legal loopholes in Australia and New Zealand
• Fintechs raise capital in Australia but spent most of it in other countries (for example, Zip raised $ 150 million last week but will spend $ 138 million abroad)
• Tech companies have started offering financial services but these are mostly outside the glare of regulation. For example, Amazon (NASDAQ: AMZN) and Google (NASDAQ: GOOGL)

Germany’s Wirecard scandal

• Key regulators have not assimilated the lessons from the Wirecard scandal in Germany
• German regulators did not act soon enough in the case even though there were repeated calls for action earlier
• Fintechs may be a “growing blindspot” for regulators. How do you regulate a firm that acts like a bank, but isn’t really one?
• In the Wirecard scandal, German regulators were focused on its German banking unit rather than the company as a whole

Credit assessment and reporting

• Australian BNPL apps have bad debts amounting to nearly 30% of revenues
• Many BNPL apps also offer lines of credit and fixed installment loans. Yet, they are unregulated.
• They also do not assess consumers’ ability to pay
• Most of them do not use credit bureau reports for new credit applications
• Nor do they update performance, or report defaults, to the credit bureaus

Money guru Martin Lewis, UK on BNPL fintechs

Earlier this month, UK money guru Martin Lewis warned that an explosion of buy now pay later (BNPL) companies were targeting the under-30s and getting them into debt.

Lewis said in a House of Commons hearing that the sector urgently needed regulation, according to The Guardian.

“My issue is that, just like with payday loans, it will be too late. It is unregulated, without controls both in product design and communications. When people have a problem – and often it actually works pretty well – there is no ombudsman you can go to, because it is unregulated. I would call for maximum speed to move this into the regulatory environment.”

Related Story:  Aussie “Buy Now Pay Later” (BNPL) Openpay Launches In The U.S.