ill now be considered a credit product under the Act, with providers having to hold an Australian Credit License and comply with responsible lending obligations. It would also be scalable based on the risk of consumer harm, but the details on this are unknown. But, what do these incoming regulatory changes mean for retailers who are reliant on BNPL to attract and retain customer sales? Will the popularity of these services remain strong, or will there be a drop off in the number of retailers offering the payment option? Frictionless and seamless Professor of marketing and consumer behaviour at Macquarie University, Jana Bowden cited IBISworld data, explaining that the BNPL sector had experienced sustained revenue growth of about 29.3 per cent over the last five years, and is expected to grow by over eight per cent between 2023-2028. She told Inside Retail that BNPL had been boosted by Covid-19 restrictions and the shift to an omnichannel approach in recent years, with strong demand by customers when shopping online and in department stores.   Bowden also noted that 160,000 businesses offer BNPL – which see an average transaction of $136 – and that 82 per cent of retailers believe their customers expect BNPL to be offered at checkout. Further, she pointed out that over half of retailers who use the payment option do so to meet needs around convenience. She said that there is a clear consumer appetite for BNPL, which enables for a frictionless and seamless experience. “It’s what customers want and that means it’s a goldmine for retail,” Bowden told Inside Retail.  “It gives consumers an easier, more flexible and convenient way to pay. It also reduces consumer perceptions of risk in purchasing [as they buy] what they need or want now, whilst delaying the financial impact with no interest penalties until a later date,” Bowden said. Vicious cycle With data showing that 26 per cent of customers regularly used BNPL in 2022, Bowden believes that the appetite for the payment option would withstand tighter regulations. She also contended that BNPL is a “double-edged sword” that can plunge consumers further into debt. Younger Australians are especially at-risk, as they have embraced the service en-masse. “Given that the average consumer has two BNPL accounts we are looking at a debt multiplier effect. For vulnerable consumers it’s a vicious cycle potentially worsened by the cost-of-living crisis that we are in,” Bowden said. “In its present form, the proposed regulatory changes are really about creating a safer and more responsible environment for consumers.” Regarding the implications of these new regulations, Bowden contended that the growth of BNPL might temporarily slow as the sector grapples with new rules. In addition, certain providers might stop offering the service.   But, she added that the new regulatory framework is a first step in protecting consumers, which is a positive outcome from a moral and ethical standpoint. “For retailers, in the long run once the regulations are hashed out, it may represent a loss of some consumers who do not end up qualifying for BNPL accounts and loans,” she said. “Despite regulation, for most retailers demand for BNPL will remain strong.” Attractive to retailers National Retail Association (NRA) CEO Greg Griffith forecasted that incoming BNPL regulations are set to have a “small but significant fiscal impact on retailers”. He observed that consumers who fail credit checks would be unable to access BNPL. As a result, retailers might initially lose some sales as customers are unable to make purchases.  But, Griffith believes that consumers would either find other ways to finance their spending, or would show fiscal restraint until they could responsibly afford the goods they were intending to buy. He expected that the popularity of BNPL would continue to grow – even with the new regulations – due to its resonance among young consumers on social media, and its perception as an “easy payment process”. “BNPL is unlikely to decline as a payment option. In fact, it represents a significant and growing portion of retail transactions, particularly in fashion and electronic goods, and predominantly among Gen Z’s and millennials,” Griffith said. “BNPL apps are also attractive to retailers. They provide digital marketing support that encourages higher sales, larger orders, a broader customer base, higher customer loyalty, lower marketing costs, and reduced fraud.” Values and trends As retailers operate “in a digital world,” Griffith maintained that location and size shouldn’t be a relevant factor in a retailer’s ability to navigate the regulations. Rather, as the variety of BNPL providers expands, retailers would have to evaluate the best option for them. Griffith asserted that there was public support for initiatives that further enable customers to spend within their means.  “Consumers, particularly younger people, are moving away from traditional lending and payment options toward cheaper, more convenient, digital options that are more aligned with their values and experiences,” he said. “Retailers will need to keep abreast of consumer values and trends and how these fit with BNPL.” He added that the biggest threat to the popularity of BNPL spending is inflationary pressures, and that non-discretionary spend on products where BNPL is typically used, such as basic goods and services, would likely take a greater proportion of the weekly budget moving forward. Signing their life away Consultant Mark Baartse said that the regulatory change could see customers have to undergo a more intrusive sign up proces. This, he said, could potentially deter certain customers, and roll back some of the growth that retailers experienced when they first started offering BNPL. But, Baartse explained that the payment mix would likely change after the regulations take effect. “BNPL often has incremental conversions and higher basket size, but [this] is offset with high transaction costs,” he said. “It’s possible that some customers will simply revert to using a card [thus] sav[ing] the retailer money. This is more pronounced for those high-fee small retailers.” He added that – for higher average order value (AOV) items such as furniture – customers would be more likely to accept the more intrusive sign up process so they can continue using BNPL.  But, for lower AOV items such as clothing, he noted that customers would be “less keen to sign their life away.”