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COSBOA Slams Buy Now Pay Later Code of Practice



COSBOA has slammed the Australian Finance Industry Association’s (AFIA) Buy Now Pay Later (BNPL) Code of Practice for ignoring its biggest customer, small business merchants.

According to research from ASIC, BNPL companies such as Afterpay and Zip took almost $400 million from small businesses in merchant fees in the 2019 financial year. Yet AFIA’s code is silent on their treatment.

COSBOA CEO Peter Strong said “this code is an exercise to avoid regulation. There’s no consideration of the rights of merchants who are buying into a promise of more customers and more sales if they use Buy Now Pay Later. BNPL providers can take over half of the merchant’s profits, sometimes all of them, and sometimes more of them. The success of these companies is funded by small business.”

COSBOA understands that BNPL providers charge the cost of “free credit” to merchants at double and triple the rates of credit card companies. This is even more astounding considering that interest-free periods to pay back credit card debt are often a similar length of time to the repayment periods of BNPL services. COSBOA has called on BNPL providers to allow merchants to pass on the cost of using their products to consumers.

COSBOA notes that if the purchase is paid on time, there is no interest paid by the consumer. It is the merchant that subsidises the purchase, paying between 3-7% on the transaction. The consumer is oblivious to this fee and the merchant is prohibited from passing it on. The value to the merchant is a promise of additional value and volume of sales, as well as “promotion” of the business. With consumers happy to have “free” credit, the BNPL providers leverage merchants on their fear of missing out on a sale. The trick for merchants is to know their margins.

Here is a hypothetical example: using Afterpay on a $100 sale, a book seller would pay approximately $6.35. If the books are sold with a good margin of 30% and the book seller’s profit after costs is,for example, $10, then the BNPL fee is over half of the profit on the book. If the books are from the bargain bin outside the door, then Afterpay is reaching into the bookseller’s pocket to take their fee. COSBOA’s own initial research shows that fewer than 50% of merchants see an increase in sales values or volumes due to BNPL.

Mr Strong said “we need more people to be aware of how these companies rip off small business merchants. Spending more than half of your profit to get less than half a chance to increase your sales doesn’t seem like a good deal. In fact, it looks a bit like a scam.”

Mr Strong concluded “COSBOA’s policy on Buy Now Pay Later is positive and inclusive. We support innovative financial products as long as they sit within the regulatory system and are transparent and competitive with their merchant fees and charges, which can be passed on to beneficiary of the service.”


COSBOA's full policy on Buy Now Pay Later is available here.

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