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If the Reserve Bank of Australia (RBA) is reviewing the cost of buy-now pay-later (BNPL) services for merchants, sector leader Afterpay (ASX: APT) does not appear too concerned.
Last week, the RBA said it would review the "no surcharge" rules imposed by BNPL operators like Afterpay and Zip Co (ASX: Z1P).
BNPL platforms currently charge retailers around three to seven per cent to merchants that offer the payment services as an option in-store or online, which the RBA says adds up for Australian retailers.
"BNPL services are relatively expensive for merchants to accept and they usually restrict the ability of merchants to apply a surcharge to pass on these costs to the customers that directly benefit from the service," says the RBA in its 2019 Payments System Board Annual Report.
"Accordingly, an issue for the Bank is whether policy action in relation to these no-surcharge rules should be considered."
In response, shares in BNPL companies fell on Friday, with Zip Co seeing a 5.40 per cent drop in its share price and Afterpay seeing a 7.04 per cent drop.
Afterpay has responded this morning to the RBA's report by welcoming the review into the BNPL sector
"Afterpay is not currently subject to an RBA inquiry or review process," says Afterpay.
"We welcome the opportunity to engage with the RBA as part of its broad based, periodic review of the payments industry next year."
The BNPL giant emphasises that its merchant fees represent value the payments service adds to retailers that "extends far beyond the payment processing aspects of a transaction".
These include access to Afterpay's loyal base of millennial and Gen Z customers, the free nature of the platform, the data insights that can be derived from using the service, and the group's upfront payment to merchants guarantee.
"Merchants employ a number of paid strategies and deliver great customer experiences to grow their businesses," says Afterpay.
"We are proud that Afterpay has brought new innovation to many merchant sectors."
Afterpay also emphasised how Australia is one of few OECD countries where surcharging fees are permissibly passed onto customers. Of note, Afterpay points out how since January 2018 surcharging fees have been banned for retail credit and debit card transactions across the EU and the UK.
The RBA report was released soon after comparison site Mozo.com.au released research demonstrating how nearly half of all BNPL users have ditched their credit cards in favour of using BNPL services like Afterpay, Zip, Klarna, Splitit and LayBuy.
Shares in Afterpay are down 1.85 per cent to $20.09 per share at 11.07am AEDT
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