Afterpay defends ‘no surcharge’ policy

Afterpay says it’s ready to work with the RBA on concerns retailers are copping a raw deal.

An Afterpay sign is seen in a store window in a shopping centre in Sydney, Tuesday, February 26, 2019. (AAP Image/Derek Rose) NO ARCHIVING

Local “buy now, pay later” leader Afterpay says it’s ready to work with the Reserve Bank on concerns that retailers are copping a raw deal as they sign up to the service.

Afterpay told the market on Monday that concerns around merchants not being able to recover the high fees they pay to buy now, pay later (BNPL) services were overwrought.

“It is our understanding that legislative and/or policy change would be required for the “buy now pay later sector to be brought under specific payment system regulation”.

“Notwithstanding legislation which allows merchants to surcharge card transactions in Australia today, very few choose to do so, as it is generally perceived negatively by consumers,” it said.

The comments come after the RBA raised concerns about the high fees charged by buy now pay later providers and the “no surcharge” policy they impose on merchants.

The policy blocks retailers, who offer the service, from directly recovering the cost from customers.

However, Afterpay said that surcharges were a minor facet of the existing payments environment, citing RBA’s most recent survey that shows that less than 2 per cent of all payments in Australia in 2016 copped a surcharge.

Australia is one of very few OECD countries where surcharging fees are allowed, with the fees banned from retail credit and debit card transactions across all member states of the European Union including the UK. Similar bans apply in a number of states in the US.

Afterpay added that it offered significant value to retailers, with its platform helping them connect with new customers and move more inventory.

“Afterpay is a marketing channel to millions of hard-to-reach core millennial and Gen Z consumers. Afterpay directs millions of leads per month to many thousands of small to medium businesses (approximately 30,000 in Australia).

“In addition to growing new customers, facilitating higher conversions and average order values, Afterpay guarantees upfront payment to all of its merchants and covers all fraud and non-payment related risks,” the company said.

Afterpay is not currently subject to an RBA inquiry. However the concerns raised by the central bank highlight the growing regulatory scrutiny the buy now pay later sector, particularly Afterpay, is coming under.

Afterpay and its rival Zip recently saw their target prices slashed by investment bank UBS, with analysts warning that the BNPL sector is susceptible to regulatory backlash.

According to a UBS Evidence Lab Australian BNPL survey, investor exuberance in the sector has failed to take into account a raft of commercial, regulatory and technological risks.

UBS has set Afterpay’s target price at $17.25, significantly lower than the peak $36.54 it hit in September. The group’s shares closed fell 3.3 per cent on Monday, to $28.66.