For years, buy now, pay later (BNPL) providers weren’t held to the same regulatory standards as other credit lenders in Australia. That time is ending. Recent changes to regulations will reshape how BNPL services are offered, promoted, and used across the country.

If your business offers BNPL at checkout, partners with BNPL providers, or builds on top of the existing BNPL infrastructure, you need to know about these changes. Below, we’ll explain how to confidently follow BNPL regulations in Australia.

What’s in this article?

• What is buy now, pay later (BNPL)?
  
• How does BNPL work in Australia?
  
• Which regulations do BNPL providers need to follow?
  

What is buy now, pay later (BNPL)?

BNPL is a payment method that allows customers to get their items immediately and pay them off over time. At checkout, the BNPL provider splits the total cost into a short series of scheduled payments, often free of interest.

• A typical arrangement looks like this:

• A percentage of the total cost up front

• Equal repayments over the next few months

• No interest, as long as payments are on time

The retailer doesn’t finance BNPL agreements; a third-party provider fronts the full purchase amount to the business (minus a service fee). From the business’s perspective, it’s a guaranteed sale with immediate settlement. The BNPL provider collects repayment and assumes customer risk.

Revenue model

BNPL providers don’t charge interest on outstanding balances every month the way credit card issuers do. Customers have an outstanding BNPL balance for a set period of time. Instead, providers make money in two ways:

• Customer fees for missed payments

• Merchant fees on every transaction, which are usually a percentage of the total sale

If the customer pays on time, they typically pay nothing beyond the purchase price. But missed payments can lead to extra charges.

Approval process

BNPL platforms usually approve users in seconds, especially for low-value purchases. Approval is often based on simple identity verification and any past repayment behavior with the BNPL provider.

BNPL gives shoppers short-term flexibility without requiring them to pay credit card interest, and it provides businesses with an easier payment method to offer at checkout. BNPL providers also drive traffic to retailer websites: customers can browse stores through the provider’s marketplace or directory, similar to affiliate marketing platforms.

How does BNPL work in Australia?

Local BNPL providers such as Afterpay and Zip have been available in Australia for over a decade, and Australian customers use them for everyday spending. You’ll find them everywhere, from fashion sites and electronics retailers to dental clinics and travel agencies.

In 2024, BNPL adoption was higher in Australia than in any other country. Usage is especially high among young people, with 40% of customers aged 18–39 using BNPL in 2023.

Afterpay and Zip are the dominant providers, and international providers such as Klarna have also entered the market. Most platforms follow a “pay-in-3” or “pay-in-4” model, splitting the purchase into 3 or 4 equal payments respectively over 6–8 weeks. Some also provide extended terms and higher credit limits for more expensive purchases.

To pay with BNPL, the customer selects it as their payment method during checkout. Then, they either log in to an existing account or sign up for a new one.

Once approved, the customer agrees to a repayment schedule. The first installment might be due immediately or within 14 days, depending on the provider. The BNPL provider automatically charges subsequent payments to the customer’s chosen card or bank account. Late payments incur a fee.

Spending limits typically start low and increase over time with consistent on-time repayment.

Which regulations do BNPL providers need to follow?

Until recently, buy now, pay later operated in a legal gray area in Australia. It looked like credit and functioned like credit, but it didn’t meet the legal definition of it. BNPL providers had been offering short-term loans without being regulated as lenders.

Even without formal credit regulation, BNPL providers have been subject to bans on misleading conduct or unfair contract terms under the Australian Consumer Law. In 2021, the Australian Finance Industry Association also introduced the BNPL Code of Practice to set best practice standards for the industry. Major BNPL providers signed on to this self-regulatory initiative.

The National Credit Code has now been updated to include BNPL providers. When the new regulatory framework comes into effect on June 10, 2025, BNPL providers in Australia will be held to the same standards as other credit providers. Those standards include requirements for licensing, lending assessments, disclosure rules, and price controls. Some of the updates align with commitments already made under the BNPL Code of Practice, but the difference now is enforceability.

Here’s what compliance looks like under the new requirements.

Licensing

Any company that offers BNPL services must hold an Australian credit licence and join the Australian Financial Complaints Authority. BNPL providers can apply for the license through the Australian Securities and Investments Commission (ASIC).

Responsible lending

Most BNPL products are now legally classified as a form of “low-cost credit.” That means providers can opt in to a modified responsible lending obligations (RLO) framework that’s not as strict as the full RLO framework.

Under the modified RLO, providers must:

• Make reasonable inquiries into a customer’s financial situation, objectives, and needs before they approve the customer

• Take reasonable steps to verify a customer’s financial situation

• Assess whether the credit contract is appropriate for the customer

The law gives some leeway for small purchases. If the BNPL contract is under 2,000 Australian dollars (AUD), the provider can assume it’s appropriate for the customer’s needs and objectives, but it can’t make assumptions about their finances. Even for a 100 AUD purchase, the provider must still run a basic check into the customer’s financial situation.

If the provider determines the customer will likely experience substantial hardship from repaying, it must decline the transaction.

Fee caps

BNPL products are allowed only under this regulatory structure if they stay within strict fee limits. If those caps are exceeded, the product no longer qualifies as low-cost credit and is subject to the full weight of standard credit law.

Here’s where the caps currently sit (based on the draft legislation):

• Up to 200 AUD in total fees (excluding defaults) in the first 12 months

• Up to 125 AUD in each subsequent year

• Up to 10 AUD per month for default (late) fees

These caps limit fee increases and discourage the development of high-fee BNPL imitators.

Disclosure

BNPL providers now have to give the customer a precontract disclosure that includes:

• Their license number

• Information about their obligation not to enter a customer into an unsuitable credit contract

• Contact details for making a complaint

This disclosure increases transparency between providers and customers.

Complaint handling

BNPL providers are now required to implement a dispute resolution process that complies with ASIC standards. This gives customers more power to lodge complaints and lets them know the complaints will be handled appropriately.

Anti-avoidance

The new law anticipates work-arounds and blocks them. Providers can’t restructure fees, rename charges, or split contracts to avoid the regulations. ASIC has broad powers to interpret the substance of a product regardless of its form.