The Afterpay Touch Group Ltd (ASX: APT) share price is coming under heavy selling pressure after news of an investigation by the Reserve Bank of Australia (RBA).
The RBA is going to investigate whether any new laws or rules need to be implemented on buy now, pay later businesses that don't allow merchants from passing on costs to customers according to reporting by the Australian Financial Review.
Afterpay's share price has fallen another 8% today at the time of writing, after dropping 22% since Tuesday.
The RBA is going to consider if there are policy implications due to no surcharge rules by BNPL companies.
It's quite ironic that this is happening considering it was just this week that UBS warned Afterpay could face tougher regulatory scrutiny.
As part of the Payments System Board Annual Report, which was released yesterday, it was noted that the BNPL industry is growing quickly and changing the payments landscape.
It said "The Bank will consider the policy implications associated with the growth of new entrants and new business models as part of the forthcoming comprehensive review of card payments regulation.
"For example, 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. Accordingly, an issue for the Bank is whether policy action in relation to these no-surcharge rules should be considered."
The RBA also pointed to the fact that the Bank of England recommended the UK payments regulation should be reviewed in light of the potential risks posed by new entrants.
Foolish takeaway
It's far too soon to say what the RBA might do, but the review is likely to take up most of 2020, so investors may be wary of Afterpay's Australian regulations until then, although more of its underlying sales are likely to come from the US over the next 12 months.
