Will Afterpay shares suffer without BNPL surcharge ban?

• Afterpay (ASX: APT) share price rises to A$126.74 per share
• Australia’s central bank told BNPL firms to remove their no-surcharge rules
• Afterpay may be most affected by RBA’s new position, said UBS and Bernstein
• Keen to take advantage of Afterpay's rising share price? Open an account with us to long the stock now.

More gains in Afterpay stock price

Shares of Afterpay, which offers instalment payment services for online shoppers, finished 0.8% higher at A$126.74 on Wednesday in Sydney.

At Tuesday’s close, the fintech heavyweight’s day-on-day gains of 3.3% had helped boost the sub-index for Australian tech stocks.

Shares of Afterpay had edged down by 0.3% last Friday and another 2.7% on Monday, after the Reserve Bank of Australia (RBA) said ‘buy now, pay later’ providers will no longer be able to prohibit merchants from passing on surcharges for their services.

Eight analysts recommended ‘buy’ on the APT stock, six said to ‘hold’, and only one suggested ‘sell’, Bloomberg data showed. Their average target price was A$139.06, implying potential 8.9% upside based on Tuesday’s close of A$126.64.

Those bullish on Afterpay shares included Macquarie and RBC Capital, both with ‘outperform’ ratings, and targeting A$160 and A$127 respectively.

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BNPL firms told to drop surcharge ban

The burgeoning ‘buy now, pay later’ (BNPL) industry will soon lose one of its biggest advantages, following an announcement by Australia’s central bank.

RBA last week said it is engaging with the Treasury on ‘regulatory approaches’ to enforce its decision for such flexible-repayment companies to remove their surcharge bans on merchants. The move is ‘fiercely opposed’ by the sector, Reuters reported.

More retailers have been adding the ability for customers to split their purchases to pay them off over time. BNPL providers often offer 0% interest to consumers, but charge merchants a percentage of a transaction’s price, Bloomberg noted.

RBA said that such services tend to be expensive for merchants to accept, and it ‘has now concluded that there is a public interest case’ for BNPL firms to scrap their no-surcharge rules.

Afterpay does not expect the changes to have a material or imminent impact, but said that any reform should be subject to ‘policy processes’ of government and parliament.

Analysts from UBS and Berstein both anticipate that the central bank’s new position could affect Afterpay most significantly, as the company relies on high merchant fees to fund its business model.

Bloomberg Intelligence analysts wrote that in the short term, Afterpay faces minimal impact from RBA’s findings, as the ruling ‘may not be enacted for years’. However, the move ‘could be detrimental’ to the company, which charges merchants an average of 4.5% to offer the payment option, versus credit card fees of just 0.2-0.8%, they added.

UBS also flagged a ‘strong risk’ that overseas regulators may impose similar restrictions on their BNPL industry.

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