No-surcharge, no problems! BNPLs get a regulatory thumbs-up from RBA
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The BNPL (buy now, pay later) sector scored a regulatory victory of sorts following comments from RBA governor Phillip Lowe this morning.
In a speech discussing the regulation of Australia’s payments sector, Lowe said the RBA is in no hurry to implement changes to the “no-surcharge” rule used by on BNPL operators.
Currently, leading players in the space such as Afterpay (ASX:APT) force vendors not to pass on the cost of the service to customers.
Effectively that’s a payment from vendors to APT for helping to facilitate the transaction, and APT doesn’t let them add the margin into the sales price of their products or services.
Analysts including UBS had raised this as a key point of regulatory risk in the event regulators moved to ban the use of no-surcharge rules.
But Lowe confirmed this morning that the RBA in on board with it, at least for the medium term.
In a nutshell, Lowe summarised the RBA board’s preliminary view as follows:
“BNPL operators in Australia have not yet reached the point where it is clear that the costs arising from the no-surcharge rule outweigh the potential benefits in terms of innovation,” he said.
Consequently, in line with the RBA’s view to carry out policy in the public interest, it sees no use in acting on the no-surcharge rule “right now”.
Somewhat paradoxically, the fact BNPL is still a nascent sector worked in its regulatory favour in this case.
Lowe highlighted that while the space is growing fast, BNPL players “still account for a small proportion of total consumer payments in Australia”.
At the same time, BNPL valuations are based on the view that the sector will ultimately make up a much larger slice of that pie.
And in his comments today, Lowe said the RBA board expects that “over time, a public policy case is likely to emerge for the removal of the no-surcharge rules in at least some BNPL arrangements”.
However, it’s not going to be a near-term risk. And if moves are enacted to make changes, Lowe outlined a regulatory road map which looks long and winding.
For starters, the bank said that in engagement with industry practitioners, the bank would look to establish “possible criteria or thresholds for determining when no-surcharge rules should no longer be allowed”.
The first option would be to establish a framework directly with the relevant provider, such as those built with existing payments giants such as PayPal and Visa.
Failing that, the RBA would then “discuss with the Australian Government the best way to address the issue”.
So for now, the no-surcharge rule has been placed on the ‘not urgent’ pile.
Investors digested the news with little to no fanfare, as the cohort of ASX-listed BNPL players traded broadly flat into midday trade.