The Afterpay Ltd (ASX: APT) share price could soar today after investors learned of a win from the RBA.
What happened?
According to reporting by the Australian Financial Review, the boss of the Reserve Bank of Australia, Philip Lowe, has suggested that buy now, pay later companies will be able to keep telling merchants not to pass on costs on to customers. In the medium term, at least.
One of the reasons for reaching this conclusion was that the instalment method brings benefits and there has only been a relatively small change in the overall volume transacted compared to other existing payment months.
He was talking at the AusPayNet event, Dr Lowe said that after looking at the ‘no surcharge’ restrictions (according to the AFR): “the board’s preliminary view is that the BNPL operators in Australia have not yet reached the point where it is clear that the costs arising from the no-surcharge rule outweigh the potential benefits in terms of innovation”.
Dr Lowe went on to say that BNPL still only accounts for a small proportion of total consumer payments and the RBA would only take action when it is clear that it’s in the public interest.
So it’s blue skies for Afterpay shares?
Well, not so fast.
Firstly, he did comment that the rules might need to be changed in the longer term. As buy now, pay later volumes grow, a public policy case to remove of the no-surcharge rules in at least some BNPL arrangements may emerge. How far away is the longer term? Two years? Five years? Ten years?
Whilst the RBA itself may not put pressure on Afterpay and others, there could continue to be more pressure from competition. He referenced PayPal, which itself is releasing a buy now, pay later option in the US.
There’s plenty of competition from other businesses like Zip Co Ltd (ASX: Z1P), Humm Group Ltd (ASX: HUM), Klarna and Sezzle Inc (ASX: SZL).
For me, with how Afterpay shares are already priced, I think there are other ASX growth shares with better long term potential in the payments space such as Pushpay Holdings Ltd (ASX: PPH) which is already profitable and scaling its margins very quickly.