Buy Now, Pay Later (BNPL) service providers could be included in the government’s proposed regulations on retail payments, Trade and Consumer Affairs Minister David Clark said.
“The Cabinet has agreed to regulate the retail payment system to reduce the high cost of retail payment fees. The regulatory approach will point to particular retail payment networks that lead to poor outcomes for merchants and consumers.” Clark told interest.co.nz via a spokesperson.
“In the future, this could include a BNPL provider’s retail payment network or the networks of multiple providers.”
“My managers continue to assess the impact that BNPL providers have on merchants and this is being considered as part of the ongoing work on the regulation of the retail payment system,” said Clark.
BNPL services allow consumers to buy and obtain goods and services in-store or online immediately, but paying in installments. While there is no interest charge, there are penalty charges for late payments. You can see details of all New Zealand BNPL service providers here.
If a BNPL retail payment network has been designated, it would join the Visa and Mastercard networks.
In May Clark announced plans regulate retail payments following a Labor Party pledge ahead of last year’s election to do so.
For small and medium-sized businesses, card acceptance fees are typically the third highest cost of doing business after wages and rent. Regulations have been in place in Australia for years, with Australian merchants paying less to accept credit cards and debit cards online than their Kiwi counterparts.
A key part of the government’s plans is to regulate interchange fees. This is typically the largest portion of the larger merchant service charge, accounting for about three-quarters of it. Each bank sets its own interchange rates within the framework of a ceiling set by Visa and Mastercard. Merchant service fees are set by banks and BNPL providers.
Clark says the regulations, which will be overseen by the Commerce Commission, will cap interchange fees for credit card transactions at 0.8%, which is Australia-compliant, and cap interchange fees charged for online debit card transactions at 0.6%. Contactless debit card interchange fees will remain at their current levels of 0.2% or less, and for swiped and inserted debits, will remain at 0%.
In 2019, Retail NZ, the retail industry lobby group, said weighted average merchant service charges were 1.1% for contactless debt in New Zealand compared to just 0.6% in Australia, and for credit transactions, New Zealand was 1.5% versus 0.8% in Australia.
High merchant service fees
BNPL’s service providers charge significantly higher merchant service fees than banks. Afterpay, for example, charges between 3% and 5%, and derives 80% of its income from these fees. So any initiative to regulate fees would be huge for the BNPL industry.
Meanwhile, Clark says his priority in terms of BNPL is to ensure that triggers that can cause consumers financial hardship are addressed.
“I plan to publish a discussion paper soon to better understand the issues with using BNPL and help identify options to resolve them,” Clark said.
The regulatory debate
In its latest quarterly review of the performance of financial institutions, published Thursday, KPMG advocates self-regulation for the BNPL sector.
“A combination of self-regulation by market players, transparent explanations around the product, its intended uses and potential pitfalls, and greater consumer awareness could yield better results,” KPMG said, adding that regulation could potentially stifle the growth and sustainability of a popular product. .
On the other hand, Consumer NZ wants BNPL’s services to be regulated under the Law on Credit Agreements and Consumer Finance. Because they are not, the consumer group argues that there is no legal obligation for BNPL service providers to ensure that their loans are accountable and suitable for their customers.
A survey of Consumer NZ suggests that BNPL’s services cost buyers more than $ 10 million a year in late fees. Consumer NZ says its survey of 2,000 people aged 18 and over, conducted in April and May, found that 14% of consumers were hit with late fees. Based on the amount charged, he estimates late fees are expected to be over $ 10 million per year, with around four in 10 New Zealanders using BNPL.
Consumer NZ also said that 55% of BNPL customers surveyed said this payment option encouraged them to make purchases that they would not otherwise have made.
Meanwhile, as previously reported by interest.co.nz, the government wants the Trade Commission to start regulate overcharging by merchants.
* A version of this article first appeared in our email for paid subscribers early Thursday morning. See here for more details and how to subscribe.