Good news for buy now pay later (BNPL) companies — the Reserve Bank has decided against regulating the sector for now.
But a change could be coming down the track because the RBA reckons the arguments for a change on regulating the sector are “finely balanced’ which is a regulator’s way of saying the issue hasn’t gone away and it is still pondering whether change is needed and what the likely impact on companies and consumers might be.
The last review of the payments system for retailers was five years ago and BNPL was not an issue to be examined. But the rapid growth of the sector saw it top of the agenda for the latest review and for the time being, BNPL has escaped regulation.
But reading what the RBA said in its Friday release, it’s a matter of time until that stance changes, especially if the recent rapid growth in BNPL transactions continues.
In a report from iPayments Board, the RBA revealed the preliminary conclusions of its latest review of retail payments regulations which included consideration whether BNPL firms should be able to continue stopping retailers from surcharging people who pay in this way.
Currently, BNPL firms led by Afterpay ban retailers from adding a surcharge onto the purchase price, even though retailers pay a relatively high price for BNPL sales.
That gives BNPL an advantage over credit cards, because retailers commonly include a surcharge for customers who pay on Visa, Mastercard or American Express.
The prospect of a change is one of the regulatory risks hanging over Afterpay, Zip and other BNPL firms.
“The Board is not proposing to make changes to the surcharging rules introduced after the previous review of card payments regulation in 2015–16, because these rules are seen to be working well,” the statement from the RBA on Friday said.
“The Board is not proposing to require any ‘buy now, pay later’ (BNPL) providers to remove their no-surcharge rules at this time but considers that a policy case could emerge in the future and will keep this issue under review.
In Friday’s report the RBA repeated that its long-standing view was that merchants should be able to pass on the cost of more expensive payments to customers.
It said it would allow BNPL firms to continue imposing “no surcharge” rules because the industry was relatively small, and allowing BNPL market to grow could lead to more competition.
“The Board has reached the view that there is not a clear public interest case for requiring any BNPL providers to remove their no-surcharge rules at this time,” it said.
But the RBA did say the arguments for a change were “finely balanced” and it will keep the issue under review.
“In considering this issue, the Board has sought to strike a balance between a regulatory environment that encourages innovation by supporting the ability of newer providers of payment services to compete with more established providers (such as card schemes) and providing newer players with an unfair competitive advantage in the medium term.
“… the arguments are finely balanced and a public policy case could emerge in the future if BNPL continues to grow strongly and becomes an even more prominent part of the retail payments landscape,” The RBA added.