For a decade, buy now pay later was the great regulatory arbitrage of Australian fintech. Afterpay, Zip’s pay-in-four product and a long tail of imitators built consumer credit businesses at scale wholly or partly outside the National Consumer Credit Protection Act 2009 (Cth), because the National Credit Code exempted short-term and low-fee credit — and pay-in-four BNPL was engineered, fee structure and all, to live inside those exemptions. That era is over. The Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Act 2024 received royal assent on 10 December 2024, and from 10 June 2025 BNPL arrangements are regulated credit. If your startup provides pay-in-four, instalment billing to consumers, or embedded pay-later features — or is building anything adjacent — the question is no longer whether the credit regime applies to the sector. It’s which of two compliance tracks you’re on, and whether your product still sits outside the definitions at all.
What Changed: BNPL Contracts Become Low Cost Credit Contracts
The reform works by insertion, not exception. New sections 13B to 13E of the National Credit Code bring BNPL inside the Code, with section 13D defining a buy now pay later arrangement — in essence, an arrangement where a merchant supplies goods or services to a consumer, a third-party provider pays the merchant, and the consumer repays the provider under a connected credit contract — and the credit contract sitting inside that arrangement being the buy now pay later contract. A BNPL contract (or another contract prescribed by regulation) that stays within prescribed fee limits is a low cost credit contract (LCCC) under section 13E — a new category of regulated credit with its own tailored rulebook.
The practical consequences, per ASIC’s licensing guidance:
- Credit licensing. Anyone engaging in credit activities involving BNPL contracts must hold an Australian credit licence with the right authorisations — or operate as a representative of, or under an exemption tied to, someone who does. That brings the full licensee stack: the general conduct obligations, fit-and-proper requirements, compliance arrangements, dispute resolution and breach reporting.
- AFCA membership. External dispute resolution through the Australian Financial Complaints Authority is mandatory — every unhappy customer now has a free forum.
- Responsible lending. LCCC providers are subject to the Chapter 3 responsible lending obligations — with an important election, covered below.
- The rest of the Code. Contract disclosure requirements, hardship provisions, default notice rules and conduct obligations that BNPL never had to build for now apply, in a form modified for LCCCs.
A transitional window protects incumbents who moved early: a provider that lodged a licence application (or variation) in the approved form before 10 June 2025, and that maintains AFCA membership throughout, can keep operating until ASIC deals with the application. No new entrant can access that relief — a BNPL business launching today applies for its licence before writing its first contract, not alongside it.
The Fee Caps That Define the Category
“Low cost” is not a slogan; it’s a gate. The National Consumer Credit Protection Amendment (Low Cost Credit) Regulations 2025, registered in March 2025, prescribe the fee limits a contract must respect to qualify as an LCCC: non-default fees and charges capped at $200 in the first 12 months and $125 in each subsequent 12-month period — aggregated across all low cost credit contracts between the same provider and the same customer, with default fees separately capped (generally $120 per 12-month period) on the same aggregated basis. The caps are tested per customer relationship, not per contract: a provider charging $200 of account fees on each of three concurrent contracts with one customer blows the cap on all of them. Price above those caps and you are not offering a low cost credit contract — you are offering ordinary regulated credit, with the entire uncut Code applied to it.
For founders modelling unit economics, this inverts the old logic. The pre-reform exemptions rewarded structuring fees down to escape regulation entirely. The new regime accepts you’re regulated either way and uses the fee caps to decide how heavily. Outside narrowly prescribed exclusions, there is no fee structure that takes a third-party consumer BNPL product outside the credit regime anymore — and the Credit Act’s anti-avoidance provisions are aimed squarely at schemes designed to manufacture that outcome.
Modified Responsible Lending: The Election Most Providers Will Make
The reform’s genuine concession to the sector is the modified responsible lending framework. An LCCC provider can elect — in writing, supported by a written unsuitability assessment policy — to comply with modified responsible lending obligations instead of the standard ones, as detailed in ASIC’s Regulatory Guide 281, published 8 May 2025.
The modifications scale the compliance burden to the product’s risk: they ease the timing and depth of inquiries and verification, and — most usefully — create a rebuttable presumption that an LCCC with a credit limit of $2,000 or less meets the consumer’s requirements and objectives. That presumption does not make assessment optional. You still need an unsuitability assessment framework, still need to inquire into the consumer’s financial situation at a level proportionate to the product, and the presumption is rebuttable — a provider whose data shows a customer in visible hardship cannot hide behind it. The election is a design decision with real trade-offs: opting in buys a prescribed, credit-check-based process but demands a documented, defensible policy — and still requires inquiries into the consumer’s income, expenditure and other credit products; staying on the standard obligations means running scalable but unmodified inquiry-and-verification processes on a $300 pay-in-four. RG 281 is unusually practical by regulatory-guide standards, and any founder in this space should read it before their product team ships an onboarding flow.
Who Gets Caught Besides the Obvious BNPL Players
The definitions reach further than the Afterpay clones. Test these models against the section 13D definition:
- Vertical pay-later products — dental, vet, solar, education instalment plans funded by a third party. Classic BNPL contract, now classic regulated credit.
- Embedded finance. A SaaS platform or marketplace that arranges pay-later at checkout may be engaging in credit activities (credit assistance or acting as an intermediary) even though the credit sits on a partner’s balance sheet — a licensing question of its own, or a reason to become a credit representative of the funder under the credit regime’s analogue of the authorised representative route.
- Merchant-funded instalments. Where the merchant itself splits payments with no third-party financier and no charge for the credit, the BNPL definition — built around a third party paying the merchant — may not be triggered and older Code exemptions may still assist. That analysis is fact-specific and fragile; redesign the flow (add a fee, interpose a funding vehicle) and the answer changes.
- B2B instalments. The Code regulates credit provided wholly or predominantly for personal, domestic or household purposes (or residential property investment). Genuine business-purpose lending stays outside it — but “B2B” claims collapse where sole traders use the product for mixed purposes and declarations are treated as a formality.
Remember also what already applied before June 2025: BNPL has been subject to the design and distribution obligations since October 2021 (BNPL was always a financial product under the ASIC Act’s broader definition), alongside the ASIC Act’s prohibitions on misleading conduct and unconscionable conduct. The credit reforms stack on top of that, not instead of it.
What Founders Should Do Now
If you provide or arrange consumer instalment credit and haven’t confronted the regime, the sequence is: characterise the product against sections 13B to 13E; decide whether you need your own credit licence or can operate under someone else’s; map your fee schedule against the LCCC caps; make (and document) the modified responsible lending election if it fits; and join AFCA before you need it. Licensing has real lead time and ASIC has shown no appetite for tolerating unlicensed operation — and unlike the regimes still taking shape elsewhere in fintech, this one is fully in force, guidance and all. The arbitrage is closed; the moat now belongs to the startups that build compliance into the product early instead of retrofitting it under enforcement pressure.
This article is general information only, not legal advice — whether a payment product is a BNPL contract, a low cost credit contract or outside the Code entirely turns on its precise structure, fees and customer base. Viridian Lawyers advises Australian fintechs and startups on credit licensing, financial services regulation and capital raising. If your product lets customers pay later in any form, get in touch before ASIC characterises it for you.
