Afterpay Touch shares tumble on underage woes

Afterpay shares sank after it was revealed an underage user established an account and bought $334 of wine in less than five minutes.

Afterpay founders Anthony Eisen and Nick Molnar.

Shares in the high-altitude, “buy now, pay later” company Afterpay Touch have crashed after an extraordinary review by a proxy advisory firm said an underage user had established an account and ordered seven bottles of French champagne worth $334 in less than five minutes.

The 16 year old child of an Ownership Matters staff member had $80 in their bank account, no credit history and no job.

Afterpay responded quickly in a statement to the Australian Securities Exchange, saying it was upgrading its procedures to “curtail underage usage of its service by dishonest users”.

“On the merchant side, there are a number of legal obligations imposed on businesses that sell restricted items such as alcohol online, including an overarching obligation not to sell or deliver alcohol to a minor,” the statement said.

Afterpay shares closed down 35c, or 5.8 per cent, at $5.65, after earlier falling as much as 8 per cent.

Buy now, pay later has become an increasingly crowded segment populated by the likes of Zip Co, Openpay, PartPay, FuturePay and Ourpay.

ASIC is probing the area to better understand the revenue streams, credit approval processes, level of disclosure to ¬customers and the importance of late payment fees.

Zip, chaired by the leading commercial silk Philip Crutchfield, has said it’s the only provider to conduct credit checks on every applicant.

Even Mr Crutchfield’s application was knocked back because he had only recently opened a Facebook account.

Ownership Matters said its experience showed that Afterpay’s “transaction integrity engine” did not independently verify a person’s age, raising questions about the number of minors with Afterpay accounts, the ability of the company to enforce agreements with them, and the potential for increased regulatory attention.

In addition to transactions by minors, the review found it was possible to transact with Afterpay anonymously.

An account was set up using the name “Miguel Laucha”, which is Spanish for Mickey Mouse.

A $100 prepaid Visa card was then purchased from a major retailer, along with a prepaid SIM card, also from a major retailer.

Afterpay said its data showed the company was serving the vast majority of its customers well and they were using the product responsibly.

The company was also introducing a number of product enhancements that were not expected to have a negative impact on the business, and would introduce a cap on late fees.

The company dismissed speculation that founding shareholders Anthony Eisen and Nick Molnar would exit once the escrow on their combined 23 per cent shareholding expires on May 8.

Subject to share prices and general market conditions, Afterpay said they might sell up 10 per cent of their holdings in the next 12 months for portfolio diversification reasons.