The Reserve Bank of Australia supports subsidies in the BNPL sector

The Reserve Bank of Australia (RBA) plans to revisit the issue of subsidies in the buy now, pay later (BNPL) sector.

The review comes as the RBA intends to expand its regulatory powers and assess whether payments sector reforms are necessary, SmartCompany said on Wednesday (June 19).

According to the report, the review will focus on ancillary fees, given the changing payments landscape and the rapid development of payment systems available to merchants and consumers.

Under proposed changes to the Payment Systems (Regulation) Act 1998 (PSRA), the RBA intends to redefine the terms “payment system” and “participant”, giving it greater powers to regulate the conduct of BNPL providers, digital wallet participants and others emerging As stated in the report, players in the payments space.

The review will focus primarily on surcharges, which – according to the report – have become a significant problem in the BNPL sector.

While merchants can pass on the costs of processing card transactions to consumers, many BNPL providers prohibit them from doing so, the report said. This discrepancy has led to higher transaction costs for merchants in the BNPL sector, with average costs around 3.5% of the purchase value.

According to the report, the RBA has expressed its desire to see additional fees become commonplace in the BNPL sector as it believes the benefits of zero-fee policies for new market entrants outweigh the efficiencies and costs of competition.

The report found that the Australian Financial Industry Association (AFIA), which represents BNPL providers such as Afterpay and Zip, is broadly opposed to changes to no-surcharge rules. AFIA argues that competition in the sector will naturally drive change without regulatory intervention, resulting in lower costs and greater operational added value for retailers and traders.

According to the report, the RBA plans to consult widely on the matter and gather views from the BNPL sector during the review process.

As reported by the RBA in November 2023, Australian consumers are increasingly using BNPL. The RBA found that almost a third of Australians aged 18 and over had used an installment payment offer in the 12 months prior to the survey, compared with around a quarter of consumers in 2019.

In addition to charging additional fees, the overhaul could also include regulations to enforce least cost routing (LCR) for traditional card transactions, according to SmartCompany’s report. The RBA has repeatedly called on payment service providers to provide merchants, especially small businesses, with cheaper card transaction routes. The review will also consider the use of LCR in online transactions and competition in the eCommerce payment space.