Afterpay defends its service after the Reserve Bank said it will review on buy-now, pay-later platforms

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Afterpay has played down any potential impact from the Reserve Bank’s review of rules that prevent retailers from surcharging customers who use buy now, pay later schemes, saying it delivers value to merchants far beyond the actual payment process.

In a statement to the ASX on Monday morning, Afterpay pointed out that it is “not currently subject to an RBA inquiry or review process” and what is being proposed is a “broad based, periodic review of the payments industry.”

The company also defended its service as offering value to merchants that goes “far beyond” the payment processing aspects of a transaction.

“Afterpay is a marketing channel to millions of hard-to-reach core Millennial and Gen Z consumers,” it said.

The company’s shares dived on Friday after the release of the annual report of the RBA’s Payments System Board said a review next year would look at “no surcharge” rules imposed by BNPL operators.

These prevent retailers from charging customers a surcharge for paying in this way, in contrast to credit cards, where retailers are allowed to add a surcharge to cover their extra payment costs.

Afterpay chief executive Anthony Eisen said at the Intersekt fintech festival in Melbourne last week that the company doesn’t even think of itself as a payments company.

“We’re a channel to the hardest-to-reach consumer in the world, which is Millennials and Gen Z,” he said.

“The real driving force behind our business is we give more leads and connections between existing and new customers and retailers, than any other source in the country, probably rather than Google.”

The company’s shares dived on Friday after the release of the annual report of the RBA’s Payments System Board said a review next year would look at “no surcharge” rules imposed by BNPL operators.

These prevent retailers from charging customers a surcharge for paying in this way, in contrast to credit cards, where retailers are allowed to add a surcharge to cover their extra payment costs.

Afterpay’s business model is based on its service being free to customers and charging retailers a fee for the service.

A Morgan Stanley research note said Afterpay “looks oversold on misplaced concerns around the ‘no-surcharge” rule” and maintained its $44 price target and overweight recommendation on the stock.

Afterpay shares, which traded above $36 last week, were trading 3 per cent lower at $28.83 on Monday.

Like Afterpay, the broker argued that buy now, pay later is not ubiquitous enough to be regulated. “While BNPL has grown rapidly, its total purchase value of $6 billion per annum remains modest compared to cards (more than $600 billion) and penetration rates are just 5 to 20 per cent within its core verticals.”

It also said there is currently a low prevalence of retailers surcharging card payments in Afterpay’s core verticals of fashion, beauty and homewares.

This story originally appeared on the Sydney Morning Herald. Read the original here.

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