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Afterpay Does More Good Than Harm, RBA Says

The Reserve Bank has indicated Buy Now, Pay Later (BNPL) schemes such as Afterpay will be able to continue to insist merchants do not pass instalment payment fees onto customers – at least for now.

RBA governor Phillip Lowe said the surprise stance was due to the benefits instalment products bring to consumers and the small overall volume transactions made in comparison to existing payment methods, like credit cards.

Major retailers in Australia, including Bunnings, JB Hi-Fi and now even airlines, have offered BNPL services to customers in a bid to capture shoppers who do not use credit cards.

During a speech to the AusPayNet event, Dr Lowe said the regulation review found the BNPL operators “have not reached the point where it is clear the costs arising from the no-surcharge rule outweigh the potential benefits in terms of innovation”, according to the Australian Financial Review.

Critics of the BNPL programs have called for the RBA to insist merchants should be able to pass on the cost of instalment payments to customers if they wish – just as they do for credit cards.

This move would impede on the BNPL sector’s biggest consumer advantage, which is that customers only pay a fee if they are late with repayments. The rest of the costs are shouldered by merchants.

Dr Lowe said the RBA would only regulate “when it is clear doing so is in the public interest” and revealed “the board is unlikely to conclude that the BNPL operators should be required to remove their no-surcharge rules right now”.

Afterpay told the RBA review it should not be defined as a payments system but rather a platform which refers customers to retailers.

The BNPL industry is exploding with a number of competitors popping up to rival Afterpay, including PayPal which recently introduced its ‘pay in 4’ scheme in September with lower fees.

There is also a heavy spotlight on BNPL schemes as analysts arguing it causes financial stress for vulnerable customers.

In 2018, Afterpay reported that it earned 24.4 %of its income from late fees and 75.6% from merchant fees.

Customers who miss instalments are subject to a $10 penalty for the first fortnightly payment, then a further $7 fee if it is not paid after one week. Each transaction carries a maximum fee of $68.

There are calls for the Australian government to broaden credit regulations so it covers the BNPL sector. As it stands, BNPL operators fall outside of ASIC’s regulatory power due to a loophole.

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