Christos Fragias
A former Reserve Bank payments expert has weighed into the surcharging debate, arguing that the regulator’s toleration of “no surcharge” rules in buy now pay later schemes is errant policy.
Christos Fragias, a Sydney consultant who managed the rollout of a payments incident reporting system at the RBA between 2012 and 2016, believes the regulator should be applying standards on surcharging consistently across the payments industry.
In a consultation paper released last week the RBA flagged it would allow buy now pay later providers to continue to prevent retailers from surcharging customers for purchases made through their platforms.
However, the RBA’s stance appears inconsistent with its 2003 decision to slap a ban on “no surcharge rules” that previously operated in the Visa and Mastercard card schemes.
Fragias maintains that the RBA’s inconsistent approach to surcharging across the payments industry undermines the principle of regulatory neutrality in the payments market.
“The RBA needs to maintain consistency in its regulation of competing payment methods,” he said.
“There is a strong perception in the payments industry that the regulator’s approach favours buy now pay later as a method of payment despite the fact it is more costly than debit and credit cards.”
Fragias says that the inability of merchants to pass on to customers the fees they pay BNPL schemes gives providers such as Afterpay an unfair advantage over providers of surcharged methods such as debit and credit cards.
“Buy now pay later schemes are leveraging that regulatory advantage,” he said.
Fragias is concerned that as technology advancements create new payments models, the RBA is sending a confused message it plans to vary the way it applies regulatory standards between emerging and established modes of payment.
In its recently released consultation paper, the RBA restated its longstanding view that surcharging promotes competition and efficiency in the payments system.
However, it defended the proposed retention of no surcharge rules for BNPL schemes, arguing they help new services to build customer and merchant networks.
“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,” the RBA states in the consultation paper.
“BNPL still accounts for a small share of payments in the economy when compared to some other electronic payment methods such as cards, despite recent strong growth.”
Fragias’ critique of the RBA’s arbitrary application of surcharging standards has wide-ranging support across the banking industry and the consumer movement.
Leading banks such as CBA and ANZ want the concession on surcharging standards afforded to BNPL schemes reversed, as do the country’s most prominent consumer advocates, Choice, the Consumer Action Law Centre and Financial Counselling Australia.
In a joint submission to the RBA’s retail payments review, the consumer groups argued that no-surcharge rules in BNPL schemes were anti-competitive.
“Our organisations strongly support the RBA making changes to payments regulation to enable merchants to pass on surcharges they incur for payment methods such as BNPL,” the consumer advocacy groups told the RBA.
“This approach is fair as it signals to customers the costs of using different payment options and encourages customers to choose cheaper payment methods.
“It also prevents other customers from cross-subsidising other more expensive forms of payments and means that businesses do not inflate the cost of goods and services to cover costs they incur but cannot recoup through surcharges.”