By Colin Kruger
Afterpay rival Splitit says it is not worried by the threat of the Reserve Bank forcing buy now, pay later providers to allow surcharging as the challenges facing the sector grow.
Unlike its rivals, the credit card-based Splitit already allows its merchant customers the option of passing on the cost of its instalment-based service to consumers.
“We actually don’t prohibit surcharging," said Splitit's new chief executive Brad Paterson.
"In markets where that is allowed such as Australia, given we operate on the payments networks, we don’t prohibit that. It’s up to the merchants to decide,” he said.
Some experts are already asking if buy now, pay later retail sales have peaked in Australia.Credit: Dominic Lorrimer
Splitit differs from Afterpay in that it uses the available credit on a customers' existing credit card to secure the full value of the transaction, with customers paying the monthly instalments.
Surcharging has been one of the issues that has dragged the share price of buy now, pay later (BNPL) providers such as Afterpay and Zip Co from record highs in recent weeks.
The whole premise of the buy now, pay later service is that it is free to customers. Merchants are the ones who pick up the cost, which can be as much as 6 per cent of the purchase price.
Last month, the RBA's Payments System Board said a review next year would look at "no surcharge" rules imposed by BNPL operators.
The business model remains a very high volume, low margin business.
Grant Halverson
Mr Paterson, who is a veteran of the financial sector having started at Visa's Australian operations in 2001 and also worked in the region with PayPal, indicated the review into surcharging wouldn't have a big impact.
"What we’ve seen on the payments system in my time at Visa and PayPal is that in markets where it’s not highly competitive those merchants will surcharge, in markets where it is highly competitive they won’t," he said.
Splitit chief executive Brad Paterson says it is up to merchants to decide if they want to add a surcharge.
Grant Halverson, the former chief executive of retail banking and payments consultancy McLean Roche Consulting, pointed to other challenges facing buy now, pay later providers.
Mr Halverson said the growth of sales on buy now, pay later platforms in Australia and New Zealand had slowed by two-thirds in 2019.
"This is a very worrying sign," he said in a report last week.
Mr Halverson questioned whether buy now, pay later growth had peaked in these markets despite representing less than 1 per cent of the $875 billion Australasian payments market and at marginal viability.
"The business model remains a very high volume, low margin business. For example, a $100 sale earns $4 in revenue with the hope of making 30-40 cents profit," he said.
The immediate challenge for Splitit's new chief executive is not making a profit.
It is convincing the market the company is in a different competitive space to the rest of the sector due to the fact that Splitit is the only player that operates on top of the credit card payment platform.
“That means those accounts already exist in the market today. We are serving consumers that have that line of credit," said Mr Paterson, who was appointed CEO last month.
"Everybody else is fighting in a separate pool, to serve those who do not have a credit card ... and they are giving them a line of credit.”