Now, eight years after Afterpay’s disruption, the centrepiece of...

Now, eight years after Afterpay’s disruption, the centrepiece of their innovation – no merchant fees charged to consumers – is under threat from the payments system regulator, the Reserve Bank of Australia.

New legislation, which was given the tick of approval on Friday by the Senate Economics Legislation Committee, will expand the RBA’s payments powers to designate and regulate a much broader range of payment systems including BNPL, Apple Pay and Google Pay.

This expansion in powers is overdue given that the unregulated Apple Pay and Google Pay are at the forefront of the explosion in the use of digital wallets for payment. Tap and pay using digital wallets now accounts for a third of card payments.

It looks as though BNPL will suffer collateral damage from the payments systems changes included in an omnibus bill called the Treasury Law Amendment (Better targeted Superannuation Concessions and Other Measures) Bill 2024.

The RBA told the Senate Committee it has not decided on whether to designate BNPL and thereby enable surcharging of consumers by merchants.

But the RBA’s long-standing and rigorous commitment to “payments efficiency” points to that being the likely outcome, notwithstanding the negative consequences for competition.

Bringing BNPL into the surcharging net would undermine the economics of the business models pursued by Afterpay and its peers, including Latitude Financial, Zip, Klarna, Brighte, Payright and the copycat products offered by CBA, Westpac and NAB.

Profit margins for BNPL are typically less than 10 per cent whereas Visa has a profit margin of 71 per cent and MasterCard’s is 62 per cent, according to data compiled by Citi.

The biggest winners from increased regulation of BNPL would be MasterCard and Visa, as well as the big four banks which account for 80 per cent of credit card balances outstanding.

a f r com/companies/financial-services/payments-innovation-under-threat-from-rba-20240512-p5jcwz