The RBA last year signalled it could take “policy action” over the cost to merchants from buy now, pay later schemes, with key consumer bodies this week backing the removal of such “no surcharge” rules.
In a submission to the RBA, Afterpay chief executive Anthony Eisen argued the BNPL service should be seen as a sales and marketing platform, drawing comparisons with the likes of Google, Facebook or Amazon. He highlighted retail promotions it runs such as Afterpay Day, a twice-yearly sale, and said its online store directory drove 48 million referrals last financial year.
“Afterpay’s unique characteristics and value proposition to merchants and consumers means it should not be considered a payment system,” he wrote, adding that referral fees charged by tech giants were between 10 and 15 per cent.
“As a customer acquisition channel for merchants, Afterpay competes with large players such as Google and Facebook, and provides leads to merchants at a much lower cost.”
He said the BNPL sector was “nascent” and although it was growing rapidly, purchases made through BNPL products were worth $6.2 billion in 2019, or less than 1 per cent of payments in the economy.
It comes after leading consumer groups including Choice this week said retailers should be able to impose a surcharge for Afterpay, by saying retailers would pass on BNPL costs through higher prices for all customers.
But Mr Eisen said there were key differences between Afterpay and credit or debit cards.
He said that international credit card schemes’ fees were not regulated by the RBA until 2004, two decades after launching in Australia, when they accounted for more than a third of spending.
Mr Eisen argued that if merchants could impose a surcharge that covered the full Afterpay merchant fee, they would recover much more than their payment costs because the fee also reflected other benefits retailers received from the platform.
The issue of surcharging has played into debates on Afterpay’s share price, with some analysts viewing its reliance on high commissions as a key weakness in its model because they believe retailers will lobby to have regulations imposed.
A paper funded by Afterpay from economic consultancy AlphaBeta also argued Afterpay did not push up prices. It said the prices of the items most-purchased on Afterpay, such as women’s bags, make-up and jewellery, had fallen by 9 per cent in the past two years. It said the least-purchased products on Afterpay, which included swimwear, babywear and casual wear, had fallen by a smaller margin of 3.3 per cent over the same period.
Afterpay shares, which have more than doubled in the past year, fell 0.5 per cent to $38.99.
Clancy Yeates is a business reporter.