RBA: BNPL providers dodges a bullet

  • By Elizabeth Fry

The buy now pay later providers have won a reprieve after the central bank’s payments board decided not to force them to remove their no-surcharge rules. 

The Reserve Bank of Australia - which on Friday released a consultation paper setting out  the proposed policy actions - said the BNPL outfits still account for a small share of payments in the economy when compared to cards, despite recent strong growth.  

Also, the board said it was conscious that the entry of newer players in the BNPL market had the potential to lead to lower merchant costs without the need for regulatory intervention.  

“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 payments board said in a release. 

“However, 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 board noted that BNPL services are often free or inexpensive for consumers to use if payments are made on time, but tend to be expensive for merchants to accept.  

In general, the regulator is not proposing major reforms to the central bank's retail payments regulation.  

Key policy changes proposed are “relatively modest” and relate mostly to dual-network debit cards and least-cost routing; interchange fees; and the transparency of scheme fees, according to the central bank.  

In the release, the board proposed cutting the debit card interchange cap from 15 cents to 10 cents for dual-network debit card and all prepaid cards and to six cents for single network debit cards. 

Further, it will require card schemes to publish interchange fees on transactions for foreign-issued card on their website. Schemes must provide the bank with access to their scheme schedules and rules and must notify the bank of any changes 

Providers will be required to provide quarterly data on scheme fee revenue and rebates to the banks, the board said in the consultation paper. 

UBS analysts said “banks, merchants and consumer groups were generally in favour of requiring BNPL providers to remove their no-surcharge rules, largely on the basis of…higher costs, consistency and competitive neutrality”, while BNPL providers argued there is not a case to remove no-surcharge rules as the “industry is still emerging, is a competitive part of the retail payments landscape, and remains small relative to the size of other electronic payment methods”.