From the moment the buy now, pay later (BNPL) concept was born, it has faced criticism and the threat of possible regulation. The sector that BNPL aims to supplement (or perhaps replace), credit provision, is one of the most regulated industries in the country.
Under current laws, not every Tom, Jane or Harry is allowed to offer credit cards or personal loans to anyone they please. You need a credit license, regulatory approval and the ability to satisfy a raft of other compliance measures.
But the same cannot be said of BNPL products. The companies that offer BNPL services, such as Afterpay Ltd (ASX: APT), have long argued they shouldn't be subject to the same laws and regulations as traditional credit providers. That's namely because BNPL products usually don't charge interest. And it is interest (which has a nasty habit of compounding over time) that normally gets debtors into strife. Or so the argument goes.
Until now, BNPL providers have managed to keep this status quo going, despite those such as Commonwealth Bank of Australia (ASX: CBA) CEO Matt Comyn telling investors last month he believes BNPL regulation to be 'inevitable'.
However, reporting from the Australian Financial Review (AFR) this morning has put another feather in the caps of Afterpay and the wider BNPL sector.
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RBA gives BNPL another green light
The AFR reports that Reserve Bank of Australia (RBA) governor Dr. Philip Lowe "has given the strongest indication yet" that buy now, pay later providers will be able to continue insisting stores and merchants do not pass their costs on to customers. For now, at least.
According to the report, Dr Lowe gave a speech at an AusPayNet event. He laid out the RBA's position on the "no surcharge" restrictions: "The board's preliminary view is that the BNPL operators in Australia have not yet reached the point where it is clear that the costs arising from the no-surcharge rule outweigh the potential benefits in terms of innovation".
Dr. Lowe went on to state that, "even the largest BNPL providers still account for a small proportion of total consumer payments in Australia, notwithstanding their rapid growth". He noted only around 1% of the total payments volume in the country go through BNPL channels.
Lowe also points out that "the increasing array of BNPL providers is resulting in competitive pressure that could put downward pressure on merchant costs".
As such, Dr. Lowe says the RBA will only step-up regulation in the buy now, pay later sector when "it is clear that doing so is in the public interest". And right now, "the board is unlikely to conclude that the BNPL operators should be required to remove their no-surcharge rules".
