- Buy now, pay later lenders are under pressure to allow retailers to pass on their fees to customers.
- The Reserve Bank of Australia (RBA) announced a review into the practice, potentially making it easier to do so but scaring company investors away.
- Rather than fight it, Finder co-founder Fred Schebesta told Business Insider Australia that it might be just the ticket the companies need if they want to be sustainable businesses.
There's no such thing as a free lunch, the old saying goes. Explain then how buy now, pay later companies have been pigging out on the buffet for this long.
Afterpay, Zip, Sezzle and a myriad of others have managed build booming businesses in the bubbly sector, with an ingenious proposition – attract an enormous market of credit-hungry millennials and charge businesses good money to reach them.
However, that whole market is now under pressure, with the Reserve Bank of Australia (RBA) announcing a review of rules that could allow retailers to charge customers who want to pay in instalments.
A rule change could have an enormous impact on the growing number of credit companies playing in the space. Millennials and especially millennial women are estimated to make up more than 80% of Afterpay's market. Would they really be willing to pay a fairly hefty fee to use the previously free service?
There's plenty of investors who have their doubts. The RBA's announcement saw Afterpay's share price fall off a cliff, ending the same week 22% lower – as did Zip's – despite the former's anxious protestations that it's just "a marketing company".
The sector is understandably defensive of the suggestion that customers foot some of the bill.
"Choice is key here. It is the merchants decision to engage Zip as a payment option, as it is for consumers to decide if they use Zip as a payment service," Zip co-founder Peter Gray told Business Insider Australia.
"Ultimately, merchants receive significant value in offering Zip as a payment option.”
He points to the promotional and marketing value of buy now, pay later lenders to justify why the fees are charged entirely to the retailer. It's a good argument, and one likely echoed by many of its competitors, but what if sharing the cost around is actually a better move?
Proper surcharging could make the business model sustainable
When it comes to the issue, Finder co-founder, entrepreneur and Young Rich Lister Fred Schebesta has an alternative view.
"If merchants charge surcharges to customers that would actually create even more certainty that Afterpay [and others] are going to stay because now the price is baked into the merchants model. It's more sustainable," Schebesta told Business Insider Australia.
Conversely, the current situation sees retailers take a massive hit on the already-shrinking profit margins in the struggling retail sector.
"The problem is the merchants are taking all the costs, so they're paying the 4 to 7%. But if there's a surcharge available, and everyone moves to it, then the customer pays a bit, the merchant pays a bit, and this will guarantee Afterpay's model stays on," Schebesta said.
To his mind, it would help equalise somewhat the relationship between buy now, pay later companies and other Australian businesses, sharing some of the profits around.
"I'm actually very bullish on that and I think they should review that and I think it would be good and Afterpay I think would actually embrace it as well," Schebesta said.
Therein perhaps lies the problem, however. None will want to be the first-mover, suddenly charging individuals a percentage while their competitors remain free. In that case, each may just wait for RBA to drag them kicking and screaming into a new day.