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Afterpay share price crunched on RBA investigation

Tristan Harrison

The Afterpay Touch Group Ltd (ASX: APT) share price is coming under heavy selling pressure after news of an investigation by the Reserve Bank of Australia (RBA).

The RBA is going to investigate whether any new laws or rules need to be implemented on buy now, pay later businesses that don’t allow merchants from passing on costs to customers according to reporting by the Australian Financial Review.

Afterpay’s share price has fallen another 8% today at the time of writing, after dropping 22% since Tuesday.

The RBA is going to consider if there are policy implications due to no surcharge rules by BNPL companies.

It’s quite ironic that this is happening considering it was just this week that UBS warned Afterpay could face tougher regulatory scrutiny.

As part of the Payments System Board Annual Report, which was released yesterday, it was noted that the BNPL industry is growing quickly and changing the payments landscape.

It said “The Bank will consider the policy implications associated with the growth of new entrants and new business models as part of the forthcoming comprehensive review of card payments regulation.

“For example, BNPL services are relatively expensive for merchants to accept and they usually restrict the ability of merchants to apply a surcharge to pass on these costs to the customers that directly benefit from the service. Accordingly, an issue for the Bank is whether policy action in relation to these no-surcharge rules should be considered.”

The RBA also pointed to the fact that the Bank of England recommended the UK payments regulation should be reviewed in light of the potential risks posed by new entrants.

Foolish takeaway

It’s far too soon to say what the RBA might do, but the review is likely to take up most of 2020, so investors may be wary of Afterpay’s Australian regulations until then, although more of its underlying sales are likely to come from the US over the next 12 months.

The post Afterpay share price crunched on RBA investigation appeared first on Motley Fool Australia.

But it seems UBS was right to worry. I’ve been thinking for a while that Afterpay’s high merchant fee could be unsustainable and now there’s a danger merchants will be able to pass on some, or all, of that cost which may reduce the attractiveness of Afterpay to customers (and investors).

I’d rather stick to great growth shares like these which have easier paths to profit growth.

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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019