RBA to probe buy now pay later ‘no surcharge’ rule

RBA investigating rules preventing retailers from recouping costs from buy now pay later surcharges.

Retailers are prevented from imposing a surcharge on the purchase to recover the cost. Picture: AAP

The Reserve Bank of Australia will investigate buy now, pay later schemes such as Afterpay Touch amid concerns they are preventing retailers from recovering the high cost of the services.

The RBA’s Payment System Board said the “no-surcharge” rule imposed by buy now pay later (BNPL) providers could be “problematic” for retailers who felt compelled to offer the service but were unable to recoup the relatively high cost from customers.

In its annual report published on Thursday the PSB said the merchant service fees for BNPL schemes were much higher than those charged by alternative payment methods such as debit and credit cards.

READ MORE: Greater scrutiny of Afterpay on cards

The concerns were foreshadowed in The Australian because of the rapid spread of Afterpay Touch, Zip and other BNPL schemes to the point they have become a “must have” payment option for retailers.

This week investment bank UBS initiated coverage of Afterpay with a sell recommendation, predicting its share price would halve within a year because of issues including regulation that it has so far avoided.

Afterpay shares hit a record high $37.41 on Tuesday but have suffered three straight days of falls, losing 22 per cent of their value following the UBS report and the PSB inquiry. In early afternoon trade on Friday they were down 8pc at $29.44

The PSB said it would look at BNPL schemes as part of a review of card payment regulation starting in 2020.

Retailer spreads the cost

BNPL schemes act in a similar way to retailers lay-by schemes in which shoppers pay the purchase price in equal instalments over one to two months. Afterpay and others pay the retailer upfront but charge them a fee of 3-7 per cent of the purchase price to take the risk of recovering payments from the shopper.

The retailers are prevented from imposing a surcharge on the purchase to recover the cost, meaning the retailer must spread the cost over all other goods, whatever the method of payment used to buy them.

“From a consumer perspective, the popularity of BNPL services may relate to their convenience and potentially providing a lower-cost alternative to consumer credit,” the PSB said.

“For merchants, BNPL services may be attractive because they may facilitate increased sales. In addition, as merchants are paid upfront by the BNPL provider, they do not bear the risk of fraud or customer non-payment.”