SYDNEY (Reuters) – Identity theft complaints in Australia involving ‘buy now, pay later’ funding doubled to a record high last year, data viewed by Reuters showed, prompting authorities to curb the booming market.
Australia is a global pioneer in BNPL (Buy It Now & Pay Late) retail financing and is home to several leading providers, including Afterpay Ltd, which have experienced strong transaction growth, high valuations and flexible regulation.
A sharp rise in fraud complaints, however, has raised questions about soft surveillance, which some analysts see as a key industry risk amid growing calls from advocates for greater consumer protection in the $ 4.3 billion market. of dollars.
IDCare, a nonprofit consumer support organization, recorded a record 1,600 incident reports related to BNPL products in Australia last year, double the previous year, according to data prepared for Reuters .
While credit card fraud complaints accounted for four times that amount, the rate of increase in BNPL fraud represents a disproportionate demonstration for the startup funding alternative.
“What this really shows you is how quickly criminals are adapting to the fraud market and abusing the system,” said Moises Sanabria, Interim Managing Director of IDCare.
IDCare is funded by various institutions in both the public and private sectors and acts as the leading support service for victims of identity theft in Australia.
BNPL companies lend buyers instant funds, typically up to a few thousand dollars, which can be repaid in interest-free installments.
Since they typically make money from merchant commissions and late fees, not interest payments, they bypass the legal definition of credit – and credit laws.
This means that BNPL providers are not required to perform background checks on new accounts, unlike credit card companies, and normally only ask for the applicant’s name, address and date of birth, which makes them an easy target for fraud.
The BNPL provider cited in the most complaints over the past three years was Zip Co Ltd, mentioned in 32.9% of customer engagements, according to IDCare data.
Afterpay Ltd, Australia’s 12th largest company after a 16-fold increase in the share price in one year, ranked third out of 17 and was cited in 15.9% of BNPL complaints.
The data did not include details such as the number of complaints that resulted in the call from police or regulators. It also did not include complaints filed with organizations other than IDCare.
The pandemic-related stimulus payments and tighter credit controls by traditional lenders have partly fueled BNPL’s exceptional growth in 2020.
But complaints grew in tandem, peaking in the three months to June 2020, just after Australia released billions of dollars in pandemic relief payments, according to IDCare.
A spokesperson for Zip said the company had performed “identity and credit checks on every candidate since day one” to stop the identity theft.
He said “complaints to IDCare have increased because Zip has increased,” adding that its Australian customers have quintupled to 2.5 million in 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 medical secretary from Perth, recounted how a family acquaintance opened an Afterpay account in her name in 2019, then used it to fund a A $ 2,100 ($ 1,618) shopping spree. ‘She only found out when a collection agency informed her of a Payment.
“It’s so easy to open an account in someone else’s name … Unless you default, you’ll never know,” she said, adding that she had to lodge a complaint against acquaintance to clear the default from his credit history.
Afterpay did not respond to a question about the Vermeer case.
The BNPL boom in Australia sparked a wave of listings and pushed stock valuations to high earnings multiples.
Overlooking this growth, however, is the specter of tighter regulation.
While policymakers have so far upheld stricter regulations, growing concerns over bad credit and now fraud could strengthen the case for stronger protections.
Last week, the UK government said it would require BNPL providers to perform credit checks to reduce unusable debt.
“Credit law enforcement at BNPL, as the UK recently did, would require these businesses to ensure their processes effectively prevent fraud,” said Gerard Brody, CEO of Consumer Action Law Center in Australia.
The Australian Securities and Investments Commission (ASIC) declined to comment on IDCare’s data.
Andrew Bragg, a senator chairing a parliamentary inquiry into financial technology, told Reuters that policymakers need to strike a balance between protecting consumers and the need for innovation.
“We want to see more choice, more competition, and buy now-pay later has been a good innovation and we’ve given ASIC important regulatory tools to protect consumers,” said Bragg, who is to remit. the final report of the investigation. in April.
($ 1 = AU $ 1.2980)
Reporting by Byron Kaye; Editing by Miyoung Kim and Sam Holmes