RBA still mulling tighter rules for Afterpay, Zip as sector booms

The Reserve Bank is inching towards tighter regulation of buy now, pay later (BNPL) operators such as Afterpay as the popularity of these services surges and larger players enter the sector.

After the Commonwealth Bank announced its upcoming foray into the booming BNPL sector this week, the RBA on Thursday provided added detail on the discussions it was having with the industry about potential rules on surcharging.

The RBA said there may be one day case for tighter regulation of BNPL operators, including Afterpay, but it had not been made yet.Credit:Attila Csaszar

Currently, operators such as Afterpay do not allow retailers to add a surcharge to purchases made through BNPL systems. This often makes these purchases cheaper for customers than paying on a credit card.

The RBA last year considered banning these “no surcharge” rules at some point, but decided there was not a case for such action yet because BNPL players are still relatively small and it did not want to stifle innovation.

In an RBA Bulletin article on Thursday, the RBA did not change its policy position but reiterated that its “longstanding view” was that giving merchants the right to impose a surcharge was helpful for competition and kept payment costs down.

It also noted the rapid growth in BNPL in some sectors of the economy, and repeated that it was in discussions with the industry about when it might be in the public interest for the RBA to demand a BNPL operator removes its “no surcharge” rule.

“In principle, these criteria could take into account factors such as payment shares, use in particular industries and/or consumer adoption of BNPL services,” the RBA said.

The RBA said it had also sought feedback from the industry on any numerical thresholds for banning “no surcharge” rules.

Analysts have debated the extent to which any action by the RBA on surcharging will affect Afterpay and rivals such as Zip Co. The RBA cited a 2019 consumer survey that found if BNPL payments attracted a surcharge, about half of respondents said they would use another payment method, 40 per cent said they would pay the surcharge, and 10 per cent said they would cancel the purchase.

The article said BNPL payments processed had jumped to more than $9 billion in 2019-20, with larger players experiencing 50 per cent growth in the second half of 2020. However, it said the value of BNPL payments was still less than 2 per cent of the total value of Australian payments.

The RBA also noted the arrival of traditional financial institutions into the sector, including CBA’s move into the industry through a partnership with Sweden’s Klarna, and Westpac’s partnership with Afterpay.

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