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Afterpay share price: Where next as RBA releases payments review?

We examine what the Review of Retail Payments Regulation – Consultation Paper could mean for the BNPL sector.

The new playbook

The Reserve Bank of Australia (RBA) last week released its preliminary conclusions and draft standards on its Review of Retail Payments Regulation – Consultation Paper.

As it applies to buy now pay later (BNPL) companies, the main takeaway from this preliminary paper was that the RBA would not require BNPL companies to remove their no-surcharging rules.

Fact check: in the context of BNPL, no-surcharging means that merchants cannot pass on the costs and fees associated with the provision of a BNPL service to their customers.

Ultimately, the central bank found that there would be no clear public benefit to implementing a no-surcharging rule at this time.

‘The Board has reached the view that there is not a clear public interest case for requiring any BNPL providers to remove their no-surcharge rules at this time.’

Looking ahead, the RBA did however flag that ‘a policy case could emerge in the future and will keep this issue under review,’ though also noted that currently, despite strong growth, the BNPL sector as a whole and in terms of payments processed, remains quite small.

The RBA said it expected to reach its final conclusion on these matters in the second half of 2021.The RBA said it expected to reach its final conclusion on these matters in the second half of 2021.

Morgan Stanley analysts responded positively to this report, reiterating their Overweight rating and $149 price target on Afterpay, while saying:

'We think these are incrementally positive for APT and other buy-now-pay-later (BNPL) providers.'

The investment bank also said potential changes around interchange fees could have a small positive impact on Afterpay:

‘We think this cuts APT's processing cost by ~17bp on some Australian transactions. No proposals on credit fees.’

UBS, it typical UBS fashion, took a sceptical view of the payments review, saying:

‘In our view, the more successful the BNPL sector is, the more likely it will attract regulatory scrutiny and there is a significant risk that no surcharge rules will be prohibited in the future based on today’s announcement.’

Market response

Australia’s leading BNPL stocks – Afterpay (ticker: APT), Zip (ticker: Z1P) and Sezzle (ticker: SZL) – have been in a clear downtrend in the last month, amidst growing inflation fears and a rotation from growth to value names.

In the last month, Sezzle has witnessed the most pronounced losses, with the stock down 23% in that period, followed by Afterpay which is down 19% and Zip which has fallen 11%.

This contrasts to the broader market, which has risen in that period, with the ASX 200 up some 2.2% in the last 30 days.

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