Afterpay waits on Austrac report

All eyes will be on Afterpay on Tuesday as Austrac probes its compliance with anti-money laundering laws.

Anthony Eisen and Nick Molnar from technology company Afterpay.

All eyes will be on Afterpay on Tuesday, with an external auditor handing down an interim report ordered by transaction watchdog Austrac into the company’s compliance with anti-money laundering and counter-terrorism financing laws.

The red-hot “buy now, pay later” sector is still finding its feet in Australia and Tuesday’s interim report could deliver a blow to a company that until now has won over investors and, importantly, consumers.

In a notice issued to Afterpay in June, Austrac said it had “reasonable grounds” to suspect the company “has contravened and/or is contravening sections 32 and 81 of the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Act”.

Section 32 requires companies to verify customers using their name and either address or date of birth using “reliable and independent electronic data from at least two separate data sources”, while section 81 requires companies to have an anti-money laundering and counter-terrorism finance program in place.

“We recognise buy-now pay-later is a new and maturing sector not only for our customers, but also for regulators,” the company said at the time.

“We will continue to work closely with Austrac to develop a leading compliance regime specific to our business in a transparent and co-operative manner.”

Shares in the buy-now, pay- later provider were down about 2.7 per cent on Monday on an otherwise positive day for the market.

It comes as an analyst report from Citi gave the company a “neutral” rating, setting its target price at $33.70 and citing the audit as a key risk.

Citi analysts said the company’s meteoric growth in Australia and New Zealand would slow, and in-store penetration would be the biggest driver.

“Afterpay is the clear market leader in ANZ and its Australian users are increasing their usage of Afterpay as time progresses and there are more avenues to use Afterpay,” the report said, adding that “while Afterpay currently has sufficient liquidity to fund $23bn of GMV (gross merchandise volume), a significant penalty represents a key risk.”

The company last month was adamant it remained on track to achieve its $20bn target in global underlying sales by 2022, despite challenges, including the Austrac probe. However, in its annual report the board said it “reserves its discretion to make any adjustments to final STI outcomes” for executives “to reflect the outcomes of the Austrac audit”.

Amid concerns the company will face threats from payments giants like Mastercard, Visa and Square, Afterpay last month announced a strategic partnership with Visa “to support future expansion and platform innovation in the US”.

Citi said that could lead to Afterpay ditching its QR code in-store solution, at least in the US: “We see potential for Afterpay to announce a virtual card/app-based solution that could accelerate its in-store rollout in the US.”

Afterpay was approached for comment.