Better late than never – it has just taken the Reserve Bank of Australia around two years to conduct its review into BNPL surcharging.

But as widely forecast, Australia's central bank concludes that buy now pay later firms will no longer be able to prohibit merchants from passing on surcharges for their services.

Stating the obvious, the BNPL sector opposed the proposed change as at a stroke, it would axe a key USP for BNPL products.

Now, having lobbied against such a major regulatory change, the BNPL evangelists try to dismiss the significance of the proposal.

They suggest, for example, that BNPL has become so well established and valued by merchants and consumers that the change will make little difference.

The regulator is trying to ensure that there is a level playing field for BNPL providers and the credit card sector.

Australia is one of a few mature payment markets that allow surcharging. This has been law since 2003.

If one takes as a rough working estimate, a merchant cost of 4% to 6%, a A$150 BNPL transaction could become one worth around A$155 to A$159.

Is BNPL so beloved by consumers that they would wear such an increase?

The RBA has already done its homework. In March, it noted that 50% of BNPL consumers say a 4% surcharge will make them switch to other payment type i.e. debit cards Some. 10% would cancel and not buy - while 40% will keep using BNPL.

As Grant Halverson, founder of McLean Roche tells me: “A 60% potential reduction in sales/revenue for BNPL is catastrophic - nothing short of life changing for all these fintech start-ups as would need new revenues quickly.

Financial Impact could be worth A$6.9bn
“Consider the research undertaken by UBS: 67% of Afterpay users will stop using the product, 12% would continue with 21% unsure. A 67% reduction is A$7.7bn lost sales.

At a 60% potential reduction in sales of A$6.9bn, or A$276m in revenue is a big deal for these single purpose apps.”

The RBA sizes the Australian BNPL market at $11.5 billion sales at 30 June 2021 – a 60% drop is close to A$6.9bn lost by BNPL apps and moved to other payments i.e. debit cards.

Large merchants are on way less than 4% even with Afterpay, so small to medium businesses absorb the most cost currently – they can all now surcharge and bring BNPL into line with all other payments.

Further regulation is a safe forecast
This is the first Australian regulatory change BNPL apps will experience. Halverson adds: “You can bet more will be coming given the high credit losses and service issues.

Many BNPL users are smart having the cash, but prefer to use free credit – all of these consumers will move to debit or bank account payments.

This will leave BNPL with mostly stressed consumers and therefore bad debts as a percent of sales will go up. Currently the Australia listed companies have 30% of revenues as bad debts – this could blow out to 40% plus which will mean more regulation.”

Interesting times. Tempting is it is, the civilised response meantime is not avoid the temptation to link to many an archived article under a subhead of told you so-but the above narrative has been forecast by Halverson and others since the BNPL hype went off the scale.