RBA delivers win for BNPL providers like Sezzle (ASX:SZL)

Sezzle, Afterpay and other buy now, pay later providers could be breathing a regulatory sigh of relief today. Here’s why.
The post RBA delivers win for BNPL providers like Sezzle (ASX:SZL) appeared first on The Motley Fool Australia. –

In good news for buy now, pay later (BNPL) operators such as Sezzle Inc (ASX: SZL), the Reserve Bank of Australia (RBA) has ruled out forcing them to allow merchants to pass on fees when customers use their services. At least for the time being.

The news could be music to the ears of investors in popular BNPL companies, like Sezzle, Afterpay Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P), who may be concerned over increased regulation of the sector.

Let’s take a closer look at today’s news from the RBA.


As Motley Fool reported in March, The RBA has been considering banning the common practice of BNPL providers preventing vendors from passing on any of their merchant fees to the end customer. BNPL operators can charge comparatively high merchant fees that can be up to 8x as much as those charged by credit or debit cards.

But, unlike with credit cards, under their agreements with the BNPL service providers, merchants cannot pass on any of these costs to consumers. So it would seem that today’s RBA decision allows providers like Sezzle and its cohorts to keep costs as low as possible for end customers who pay on time, without impacting their bottom lines.

The RBA said back in March, and reaffirmed today, it believes the rules may stymie “competition and efficiency in the payments system.” However, the RBA conceded today further regulation would have the possibility of aiding competition by allowing new companies to come in and be attractive to consumers.

In December 2020, RBA Governor Dr Philip Lowe said on the issue:

“…BNPL operators in Australia have not yet reached the point where it is clear that the costs arising from the no-surcharge rule outweigh potential benefits in terms of innovation.”

Based on today’s decision, it would appear the RBA still believes this is the case, at least for the time being.

BNPL won’t face more regulation for now

In making its decision to maintain the status quo, the RBA says it:

…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.

It added that there is no “public interest case” for forcing BNPL providers to allow merchant surcharging. The central bank, however, explicitly did not rule out making such rules in the future.

“…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 RBA said.

“The Board will therefore keep this policy issue under review in light of market developments.”

According to the RBA, less than 1% of “the number and value of consumer transactions” in Australia are currently made using BNPL services.

If the RBA was to regulate the removal of the ‘no surcharge’ rule, research by the Bank suggests around 50% of consumers would switch to an alternative form of payment. According to the RBA, 10% of consumers stated they would cancel the purchase.

For the time being, at least, it seems companies like Sezzle, Afterpay and Zip can breathe a regulatory sigh of relief.

BNPL share prices unfazed

Despite the apparent positive news from the RBA today, BNPL shares had a pretty lacklustre day on the ASX. Sezzle shares ended the day flat at $7.42 each. They have, however, risen by around 266% over the past 12 months.

Meanwhile, the Afterpay share price ended Friday’s session 1.14% lower at $93.93 and Zip closed the day 0.28% down at $7.19.

The market capitalisations of Afterpay, Zip, and Sezzle are $27.3 billion, $3.98 billion, and $765 million, respectively.

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The post RBA delivers win for BNPL providers like Sezzle (ASX:SZL) appeared first on The Motley Fool Australia.

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