The Reserve Bank has ordered buy now, pay later providers including Afterpay and Zip to remove rules in their contracts with merchants that prevent the payment costs of the services being passed on to customers.
The about-face by the central bank, set out in a conclusions paper for its review of retail payments regulation, comes after “strong feedback from merchants that BNPL has become an essential payment offering for many of them and that the high cost of these services was pushing up their payment costs,” the RBA said.
The RBA has now concluded “it would be in the public interest and consistent with its mandate to promote competition and efficiency in the Australian payments system for BNPL providers to remove their no-surcharge rules, so that merchants can apply a surcharge to those payments if they wish.”
“This approach is consistent with the board’s long-standing principle in relation to no-surcharge rules,” the RBA said on Friday.
Afterpay argued strenuously against removing the rules, saying buy now, pay later only represents a small volume of overall payments, and its payment cost of around 4 per cent includes other services including for marketing and referrals, in addition to the payment.
In a speech last December, RBA governor Philip Lowe said it was too early to impose the removal of the rules because BNPL was still relatively small and the bank realised it needed to support innovation.
But on Friday, the RBA pointed to “the adverse implications for competitive neutrality in an environment where designated card schemes and some other payment services have been required to remove their no-surcharge rules”.
It also said that while BNPL “still accounts for a relatively low share of overall transactions in the economy, there are indications that its use is now widespread in certain retail segments”.
The ruling will force Afterpay and Zip to change its merchant fee arrangements, splitting out the payment component of the fee – which can be surcharged – with the part of the fee that represents the cost of the referral and market service, which may not be able to be surcharged.