The landscape of consumer credit in Australia is undergoing significant changes, particularly in the buy now, pay later (BNPL) sector. Recent data reveals that the implementation of national regulations has exposed financial pressures that were previously obscured from the broader credit ecosystem.
Since the sector came under the National Consumer Credit Protection Act in June 2026, there has been a notable shift in the visibility of consumer financial stress. This transformation is providing a clearer picture of the economic challenges faced by many Australians.
Revealing hidden financial stress
Documented hardship rates for BNPL agreements have increased from 0.06% in June 2026 to 0.24% in March 2026. However, this rise in reported hardship does not necessarily indicate an increase in actual financial distress. Instead, it suggests that the new regulations are bringing previously hidden financial struggles to light.
Kevin James chief solutions officer at credit reporting agency Equifax explains that while formal hardship rates have risen, actual short-term and late-stage arrears levels have improved. This paradoxical situation indicates that the regulations are achieving their intended purpose of reducing default risk.
The maturing BNPL market
The BNPL sector has seen significant growth and evolution since its inception over a decade ago. The 2026 reforms coincided with a peak in BNPL demand, which accounted for one-in-four unsecured credit enquiries. By April 2026, this proportion had fallen to 14.5% suggesting a market correction under the new regulatory framework.
The average credit score on BNPL applications has improved by 133 points to 685 points in the year to April 2026. This narrowing of the credit score gap with traditional credit card applications indicates a maturing market. The average age of BNPL users has also increased, with demand from 18-25-year-olds contracting while users aged 55 and above now make up more than 15% of enquiries, up from 9% in June 2026.
Differences in usage patterns
Different age groups utilize BNPL services in vastly different ways. Younger segments tend to use BNPL for high-velocity, small-scale ‘micro-consumption’ with average enquiries of $260. In contrast, older Australians are utilizing BNPL for larger-scale, low-frequency purchases such as white goods or travel, averaging nearly $2,800 per enquiry.
Despite dealing with smaller figures, the younger cohort is more likely to run into trouble, with a short-term arrears rate of 4.3% compared to just 1.8% for those aged 55 and above. This disparity highlights the different financial pressures and priorities among various age groups.
Legal challenges and consumer protections
As the BNPL sector continues to evolve, it faces increasing scrutiny over its practices. Klarna one of the leading BNPL providers, is seeking to force a proposed class action into arbitration. The lawsuit alleges that Klarna’s BNPL service targets financially vulnerable consumers while failing to screen out unaffordable lending.
The plaintiffs argue that Klarna’s practices, including automatic withdrawals and repayment structures, can leave cash-strapped users exposed to overdraft and insufficient funds fees. This case comes as BNPL providers continue to face scrutiny over whether short-term installment loans are pushing consumers to take on more debt than they can manage.
The Consumer Financial Protection Bureau (CFPB) has previously stated that BNPL lenders must provide credit card-like consumer protections, including dispute and refund rights. The CFPB has also expressed concerns that these products can lead consumers to overextend themselves.
As the market matures and faces increasing scrutiny, it is crucial for consumers to understand the implications of these changes and make informed borrowing decisions.
