Australia’s buy now, pay later (BNPL) platforms have exploded at such a clip they’ve managed to outrun the long arm of the regulator.

Having long occupied a legal grey area, companies such as Afterpay (ASX:APT) appear to have won their latest fight against regulatory oversight.

On Wednesday evening, the Senate inquiry into fintech appeared to side with them as it handed down its early findings.

“Because innovation like ‘buy now, pay later’ often occurs on the fringes of regulation, it is inappropriate to force each innovation into a one-size-fits-all approach,” its interim report said.

“Industry self-regulation provides an initial framework to protect innovation which can later be backed up by a policy statement or a form of co-regulation (collaboration between industry and government).”

It’s the strongest indication yet that the platforms will be by and large left to their own designs.

“We welcome the premise that existing regulatory structures would not deliver fit-for-purpose regulation and would be happy to see the BNPL Code of Conduct recognised and used as the basis of more formal regulation in the future,” Afterpay CEO Anthony Eisen said in a statement issued to Business Insider Australia.

“What this report recognises is that customers are responding positively to innovation that delivers better outcomes for them, and that our regulatory frameworks need to embrace and foster this if Australia is to compete on an international level.”

The finding also means BNPL companies will evade the kind of requirements that need to be met by every other credit provider.

They won’t, for example, be made to cap late fees, run identity checks or prevent those under the age of 18 years accessing credit.

Some like Afterpay for example, also don’t run credit checks on their users, insisting instead that consumer harm is instead minimised by the caps they put on customers.

While such a model has helped the budding companies thrive – making billionaires of their founders – it has left millions of Australians unprotected, consumer advocates argue.


The myth of self-regulation

Proponents like Senator Andrew Bragg argue that fintech companies are leading a serious competitive charge against large incumbents like the big banks.

Certainly, in the aftermath of the financial services royal commission, that’s a welcome outcome, kneecapping a lucrative credit card industry that profits off sky-high interest rates.

However, it is interesting that the Senate inquiry appears to have missed perhaps the most crucial finding of that same royal commission: when financial institutions in Australia are allowed to self-regulate, they have a tendency to run roughshod over their consumers in the pursuit of profit.

Despite that reality being fleshed out in agonising detail over 12 months of public hearings, the Senate inquiry appears to have disregarded the possibility that could happen here.

It did for example note that the peak of financial hardship claims, filed between March and April, was less than 1 per cent across the entire industry.

While impressively low, there’s no doubt the figure was suppressed by record government support, in the form of JobSeeker and JobKeeper payments. As the Morrison government tapers those programs back, a new peak could well be set.

Indeed, if things do go awry, those customers have no protections under the National Credit Act, and there appears to be little appetite to offer them some under new measures.

Instead, platforms will be playing by rules they set themselves. Earlier this year, the industry created its own set of minimum voluntary standards, none of which are legally enforceable.

While some like Zip Co (ASX:Z1P) have told Business Insider Australia they support tougher rules, each company will largely be allowed to chart their own course.

This article first appeared on Business Insider Australia, Australia’s most popular business news website. Read the original article. Follow Business Insider on Facebook or Twitter.