- The move has not yet been legislated, Afterpay has been the most affected
- RBA move could be followed by foreign regulators
- Afterpay says “potential” changes are not material
SYDNEY, Oct. 22 (Reuters) – Australia’s central bank has said that businesses buy now, pay later (BNPL) will no longer be able to prohibit traders from passing on surcharges for their services, depriving the industry by rapid growth of one of its main advantages.
Following a two-year review, the Reserve Bank of Australia said on Friday it was now engaging with the Treasury on “regulatory approaches” to enforce its decision – a move fiercely opposed by the industry.
The central bank noted that BNPL’s services tend to be quite expensive for merchants to accept and “has now concluded that there is a public interest in BNPL providers in removing their no-surcharge rules.”
Australia is home to some of the largest BNPL companies in the world, including Afterpay Ltd (APT.AX) which agreed this year to be bought by Square Inc (SQ.N) for $ 29 billion. Shares of Afterpay were slightly lower in trading on Friday, while shares of rivals Zip Co Ltd (Z1P.AX) and Sezgle Inc fell 1.8% and 0.7% respectively.
Analysts at Bernstein and UBS said the RBA’s new stance was likely to affect Afterpay the most, given its reliance on high merchant fees to fund its business model. UBS also said there was a “strong risk” that foreign regulators could impose similar restrictions on the BNPL industry.
Matthew Wilson, analyst at Evans and Partners Ltd, said the changes would be a “minor issue” for Afterpay as its platform was already anchored in Australia and popular with merchants.
Afterpay said such changes should not have a material impact, but that any reform should be subject to the “political processes” of government and parliament.
The RBA’s move is a step in leveling the playing field with banks and credit card providers, who cannot prohibit merchants from passing their fees on to customers.
However, the BNPL industry is still not bound by Australia’s responsible credit or lending laws, mainly because it does not charge interest.
A 2019 survey by the RBA found that around half of BNPL users would switch to another payment method if faced with a hypothetical overload on BNPL payments.
Zip Co said it recognizes “the RBA’s new stance on overcharging and will engage with the Treasury on what that might entail.”
The RBA also said it would force eight banks and debit card issuers with around A $ 4 billion in annual debit transactions to offer merchants a multiple network option that would enable payments to be processed at a lower cost.
A multiple network option allows businesses to choose cheaper domestic systems over the popular but more expensive Visa Inc (VN) and Mastercard Inc (MA.N) networks.
Other changes include the requirement for offshore companies to post interchange fees on overseas-issued card transactions on their websites “which will be an inexpensive way to shed light on these fees relatively. high, âaccording to his 108-page report.
Reporting by Paulina Duran in Sydney; Editing by Edwina Gibbs and Lincoln Feast.
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