Netlify server functions unable to handle multipart/form-data

No, they are supporting, but the behavior on localhost is broken and Buffer received is different! If the data sent is svg image, it works on both comparing to jpeg or some compressed files. The reason behind are special characters and broken decodings for localhost. Localhost served by run start:lambda doesn’t have base64 enabled compared to your lambda functions on server. It is creating the issues with multipart/form-data. Local lambda functions behaviour is not the same as on your server.