Companies such as Afterpay and Zip took almost $400 million from small businesses in merchant fees in the 2019 financial year, ASIC research reveals.
But according to COSBOA chief executive Peter Strong, AFIA’s code is silent on their treatment.
He also said fewer than 50 per cent of merchants see an increase in sales values or volumes due to BNPL.
“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,” Mr Strong said.
“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.”
Mr Strong noted that if the purchase is paid on time, there is no interest paid by the consumer, and it is the merchant that subsidises the purchase, paying between 3 per cent and 7 per cent on the transaction.
Meanwhile, the consumer is oblivious to this fee and the merchant is prohibited from passing it on, and the value to the merchant is a promise of additional value and volume of sales, as well as “promotion” of the business, according to Mr Strong.
Further, he said that with consumers happy to have “free” credit, the BNPL providers leverage merchants on their fear of missing out on a sale.
Mr Strong gave a hypothetical example, whereby after a customer uses Afterpay on a $100 sale, a bookseller would pay approximately $6.35.
If the books are sold with a good margin of 30 per cent 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.
“We need more people to be aware of how these companies rip off small business merchants,” Mr Strong said.
“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.”