The code will take effect next week, replacing the regulatory black hole the fast-growing sector has been operating in until now.

Australia's corporate watchdog is monitoring consumer harm and problematic vendors, while the Reserve Bank as payments regulator is watching the rise of BNPL as a form of credit or financing.

Peter Gray, Zip's co-founder and chief operating officer, says the code is a "strong first step" to lifting standards across the industry.

The code has been developed by the Australian Finance Industry Association whose BNPL members include Afterpay, Brighte, flexigroup, Latitude, Openpay, Payright and Zip.

But Consumer advocacy group Choice says there should be rules, not self-regulation, guided by what is in the best interests of people using payment systems for everything from coffee and groceries to solar panels, home appliances and dental work.

By not charging interest on the credit extended to users, BNPL providers are not covered by consumer laws, responsible lending checks, caps on fees and charges, external dispute resolution and hardship requirements.

Financial Rights Legal Centre chief executive Karen Cox said at least one in five Australian consumers was missing payments.

"BNPL companies use a simple but seductive psychological trick to attract customers. Spreading out the cost of an item makes it feel less expensive, but that doesn't mean you can afford it," she said.

Mr Gray said Zip - Australia's most downloaded BNPL app in December and January - would continue to implement its own "higher standards", particularly around customer suitability.

"Zip has done ID and credit checks on every customer since inception," he said.

"As a result, we see one in 100 customers late in any month, compared with up to one in six for credit card users that are paying interest and behind with their debt."

Releasing record results on Thursday, Zip managing director Larry Diamond said the "transformational" six months to end-December was part of a global shift away from the "broken and unfriendly credit card" towards a fairer digital alternative.

Australian Associated Press