Paulina Duran

SYDNEY, (Reuters) –Australia’s central bank has announced that merchants will not be allowed to charge surcharges for services. This is a major blow to the sector’s fast-growing economy.

After a two year review, the Reserve Bank of Australia announced on Friday that it is now working with Treasury to develop “regulatory approaches”, in order to implement its decision. This was fiercely opposed within the sector.

“The central bank observed that BNPL services are often very expensive for merchants and has now decided it is in the public interest for BNPL providers not to charge any surcharges.”

Australia has some of Australia’s largest BNPL businesses, such as Afterpay Ltd. Square Inc (NYSE:) https://www.reuters.com/technology/square-buy-australias-afterpay-29-billion-2021-08-01 for $29 billion. Afterpay’s shares traded slightly lower on Friday, while Zip Co Ltd shares and Sezzle Inc shares declined 1.8% and 0.7%, respectively.

UBS and Bernstein analysts said Afterpay’s impact on the RBA was most likely due to its dependence upon high merchant fees for funding. UBS said that the BNPL market was at risk from similar regulations being imposed overseas.

Evans and Partners Ltd analyst Matthew Wilson said that Afterpay’s platform is well-established in Australia and highly valued by merchants.

Afterpay indicated that although such changes are unlikely to have a significant impact on the economy, they should still be subject to policy processes by government and parliament.

RBA’s decision is a first step to level the playing field alongside banks and credit card companies. However, merchants can not be prohibited from passing their fees on to customers.

BNPL is not subject to Australia’s credit and responsible lending laws. This is because they do not charge interest.

RBA’s 2019 survey found nearly half of BNPL-users would change to another payment method if confronted with a hypothetical surcharge.

Zip Co indicated that it acknowledged “the RBA’s current position on surcharging, and will engage Treasury about what this may mean.”

RBA stated that it will force banks and card issuers who have approximately A$4 billion annually in debit transactions, to provide merchants with a multi-network option which would enable payments to be processed at a lower cost.

Multi-network options enable businesses to select cheaper domestic networks over the expensive, but still more prevalent systems Visa Inc Networks Mastercard Inc (NYSE) and (NYSE)

Other changes include requiring offshore firms to publish interchange fees on transactions on foreign-issued cards on their websites “which will be a low-cost way of shining a light on these relatively high fees,” its 108-page report https://www.rba.gov.au/payments-and-infrastructure/review-of-retail-payments-regulation/conclusions-paper-202110/pdf/review-of-retail-payments-regulation-conclusions-paper-202110.pdf said.