Afterpay calls for payment regulation shake-up

“At present, the ability of the RBA to designate a payment system unilaterally, coupled with broad ranging powers over designated payment systems, is a source of potential policy uncertainty,” Mr Eisen wrote in his submission to Treasury’s payment system review.

“There is potential uncertainty over what types of business models are captured by the definition of ‘payment system’, and uncertainty about how the RBA might seek to exercise its very broad powers in relation to those business models that it considers to fall within its jurisdiction,” Mr Eisen wrote.

Mr Eisen backed a model similar to the United Kingdom’s, where the government – instead of the regulator – has the power to “designate” a payment system and direct the regulator’s attention accordingly.

“We believe that the Treasury should be formally empowered to oversee the policy settings for the payments system, including in designating payment systems to bring them within the mandate of individual regulators,” he said.

The RBA should retain its responsibility for oversight of systemic risk and the overall performance of the payments system, he said.

It comes after the federal government last year launched a review aimed at ensuring payments regulation supported innovation, led by lawyer King & Wood Mallesons partner Scott Farrell.

Focus on ‘no surcharge’ rules

The RBA’s ability to designate a payment system is important for Afterpay because this could be the first step to regulatory intervention over its pricing, as occurred with credit cards in the 2000s. Afterpay makes the vast bulk of its revenue from charging merchants, and it bans them from passing on these cost to consumers through a surcharge.

The RBA has investigated banning these “no surcharge” rules, but it decided not to take action last year. Even so, the prospect of future regulatory change in this area is seen as a significant risk for Afterpay by some analysts, including investment bank UBS.

Afterpay’s head of public policy and regulatory affairs, Michael Saadat, said it was important Australia’s payments policy framework did not result in regulators effectively “picking winners” through their decisions on surcharging.

“Unlike most other players in the BNPL sector we make the vast majority of our revenue from merchants, as opposed to consumers,” said Mr Saadat, a former executive at the Australian Securities and Investments Commission.

The Australian Banking Association this week said in its submission to the inquiry that the entry of tech giants into payments and rapid growth in the BNPL sector had highlighted the limits of the RBA’s regulatory remit.

Without naming Afterpay, it said regulatory gaps in the system could create problems, including with the detection of financial crime and anti-money laundering regulation. Mr Saadat said it was “strange” that banks had pointed to anti-money laundering risks given their own track record in this area, and suggested commercial factors may be their main concern.

“Afterpay is subject to Austrac’s requirements, and we identify and verify every customer that we onboard,” he said.