Zip Co Ltd (ASX: ZIP) shares kicked off the week in positive territory, closing up 1.3% on Monday at 78 cents per share.
The buy now, pay later (BNPL) stock posted those gains on the day federal regulators indicated Zip shares and other stocks in the BNPL sector were likely to face similar regulations to credit card companies.
Currently, BNPL companies aren't held to the same regulatory standards as credit card providers in ensuring their customers are unlikely to face difficulties in making their repayments.
But on Monday finance minister Katy Gallagher flagged likely changes ahead.
"People are starting to see it as a credit card," she said. "It's responsible to have a look at how it is regulated and how people are using it, what some of the problems are and how to provide that protection to people."
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Could increased BNPL regulation be a positive for Zip shares?
While Zip shares closed higher on Monday, they dropped 3.9% on Tuesday and fell 4% on Wednesday. In early morning trade today, the Zip share price is up 3.5%.
That's a bit of a mixed picture regarding the outlook for Zip shares amid tighter potential regulation of BNPL companies.
However, Zip's ANZ head Cynthia Scott was upbeat about the government's plans.
"We firmly believe the buy now, pay later industry is ready for regulation," she said. "We have been working with Treasury on options for some time and endorse any changes that give consumers greater confidence when using BNPL products."
Scott said Zip, whose shares began trading in December 2009, operates "above the minimum standard".
According to Scott:
Right from the beginning, we have held an Australian Credit Licence (ACL) and conducted credit and affordability tests on our customers in Australia. As a result we have very few customers in arrears or hardship…
The industry continues to grow very rapidly and regulation is vital as it matures. It is important that appropriate guardrails are in place to ensure consumers are protected.
How has Zip stock been tracking longer-term?
Zip shares, along with every BNPL stock we're aware of, have taken a beating over the past year as investors began to price in the impacts of fast-rising interest rates.
That's left the Zip share price down 85% over the past 12 months. For some context, the All Ordinaries Index (ASX: XAO) is down 4% over the full year.
