The Afterpay Touch Group Ltd (ASX: APT) share price is down a painful 7% because of the RBA.
Afterpay Touch is the owner of the popular “buy now, pay later” app. As of mid 2019, Afterpay had over 5.2 million registered users worldwide, making it one of Australia’s true technology success stories.
RBA To Probe Buy Now, Pay Later Sector
The Reserve Bank of Australia (RBA) has ruined Friday for Afterpay shareholders and management by announcing that it’s going to consider whether any policy action is required, according to reporting by the Australian Financial Review.
Investment bank UBS warned a couple of days ago that Afterpay could face regulation and now the RBA is going to look into it.
The issue that has caught the RBA’s attention is that merchants are not allowed to create a surcharge to pass the Afterpay fee onto customers.
The AFR quoted the juicy section from the RBA’s annual payment report:
“The bank will consider the policy implications associated with the growth of new entrants and new business models as part of the forthcoming comprehensive review of card payments regulation.
“For example, [buy now, pay later] services are relatively expensive for merchants to accept and they usually restrict the ability of merchants to apply a surcharge to pass on these costs to the customers that directly benefit from the service.
“Accordingly, an issue for the bank is whether policy action in relation to these no-surcharge rules should be considered.”
Ouch!
One of Afterpay’s main advantages against credit card businesses and other types of lending is that it isn’t a finance provider and therefore some rules don’t apply to it. But it could lose attractiveness to shoppers if they have to pay the Afterpay merchant fee.
The RBA review will start in early 2020 and it wants to finish the review by the end of the year.
I wouldn’t be surprised to see investors worry during FY20 about the outcome of the review. Afterpay has never been a business I’d want to buy for my own portfolio and this puts me off even more. I much prefer the idea of reliable and steadily growing businesses, like the ones in the free report below.
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