Reserve Bank governor Philip Lowe on Monday effectively gave the buy now, pay later brigade the green light to let their hefty surcharging rip.

That is a major backflip from where our central bank was heading last year, a fillip for stockmarket hotshot Afterpay and a feather in the cap for the government wanting less regulation of the for-profit finance sector.

First ASIC and now the RBA have rolled over for Treasurer Josh Frydenberg and fintech cheerleader Senator Andrew Bragg. (Disclosure: Senator Bragg, formerly a shill for banks and retail superannuation funds, believes The New Daily is “a highly dubious outlet”. You have been warned.)

Afterpay, the biggest of the BNPL crop, charges merchants an average of 3.9 per cent, but the fee can be as high as 6 per cent for small merchants. Unlike credit card fees, shop owners are forbidden to add a surcharge to cover the fee gouge.

Governor Lowe told an Australian Payments Network conference it was the bank’s long-standing view that the right of merchants to apply a surcharge “promotes payments system competition and keeps downward pressure on payments costs for businesses”.

“This is especially so when merchants consider that it is near essential to take a particular payment method for them to be competitive,” he said.

RBA governor Philip Lowe says the costs of the no-surcharge rule do not outweigh the potential benefits. Photo: AAP

But then came the backflip: “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.

“So consistent with its philosophy of only regulating when it is clear that doing so is in the public interest, the board is unlikely to conclude that the BNPL operators should be required to remove their no-surcharge rules right now.”

Small bus crash, not many injured.

Light-touch regulation – music to the ears of a government that fought the establishment of the Hayne Royal Commission and is now actively pushing watchpuppies back into their kennels.

We’re back to waiting for a horse to bolt before locking the stable door. There will be no getting between fintech stockmarket darlings and a bag of money.

Dr Lowe’s speech was well short of Senator Bragg’s sort of ringing endorsement of fintech fee charging, only suggesting “it is possible” no-surcharge rules can play a role in the development of new payment methods.

“While new payment methods can be developed without them, these rules can, under some circumstances, make it easier to build up a network and thereby promote innovation and entry,” he said.

His “preliminary conclusion” is at odds with the core finding of an RBA payments system issue paper last year:

“If a business chooses to apply a surcharge to recover the cost of accepting more expensive payment methods, it is able to encourage customers to consider making the payment using a cheaper option.

“The possibility that a consumer may choose to pay with a lower-cost option when presented with a surcharge also helps put competitive pressure on the pricing policies of payment providers, indirectly lowering merchants’ payments costs.

“By helping keep merchants’ costs down, the right to apply a surcharge means that businesses can offer a lower total price for goods and services to all of their customers.”

ASIC found that 20 per cent of BNPL users “cut back on or went without essentials” to make their payments on time.

The venerable principle of “competitive neutrality” – the good ol’ level playing field – used to be Reserve Bank bedrock.

The bank has been under steady pressure to echo the government policy line since Mr Frydenberg became Treasurer.

Losing its ability to impose a no-surcharge condition had been identified by Afterpay as a risk to its business model, which is presented to consumers as a “free” service. (About 20 per cent of Afterpay’s income actually comes from late fees, so it doesn’t end up being “free” for many customers.)

The fintech sector is skilled at finding loopholes in existing legislation. There is at least as much financial and legal engineering as software coding.

Afterpay persists with the fantasy that its “unique characteristics and value proposition to merchants and consumers means it should not be considered a payment system” and therefore should not be regulated like one.

The latest unregulated fintech effort is to bring pay day lending to a phone app near you.

Senator Bragg delivered the keynote at the 2020 FinTech Awards where the Startup of the Year gong went to Beforepay – a pay day lender that doesn’t want to be called that.

Beforepay charges “only” 5 per cent to lend up to $200, which it recoups directly from a customer’s bank account as soon as the customer’s next pay is deposited.

A fee of “only” 5 per cent for a week is the equivalent of a 260 per cent interest rate.

Afterpay announced in October it would offer savings accounts in conjunction with Westpac.

Fellow “pay advance” lender, Gold Coast-based MyPayNow, lends up to $750 until a customer’s next pay day, but claims: “This is definitely not payday lending – we don’t charge interest. This is real-time wages. We’re doing for the wages and payroll industry what Afterpay did for lay-by.”

The ABC reported the Consumer Action Law Centre has submitted a complaint to the Australian Securities and Investments Commission (ASIC) against MyPayNow, which does not have an Australian credit licence.

But the new pay day lenders don’t have to.

“MyPayNow does not, and is not required to, hold an Australian credit licence because it is providing an exempt product,” its general manager and founder Nic Bennetts said.

“The exemption Mr Bennetts is referring to allows for the provision of ‘short-term credit’, of up to 62 days, provided the fees and charges are no more than 5 per cent of the amount loaned and the annual interest rate is no higher than 24 per cent,” the ABC reported.

This is all wonderful innovation in the eyes of the government in general and Senator Bragg in particular.

It seems Senator Bragg has never met a fee or interest rate he didn’t like – as long as it wasn’t going to a profit-for-members organisation – and caveat emptor rules.

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