Afterpay chair Elana Rubin says it’s not anti-regulation; Square to supercharge growth 10 times over

Afterpay looks forward to engaging with regulators on changes ahead of Square’s $39bn takeover supercharging growth ‘10 times over’.

Afterpay co-CEOs and billionaires Nick Molnar and Anthony Eisen.

Afterpay chairman Elana Rubin says the listed buy now-pay later market darling is “not anti-regulation” ahead of moves by Reserve Bank to regulate the sector.

Last month, the RBA said it wants to allow retailers and other merchants to recoup BNPL costs by surcharging customers and is working with Treasury to assess how that can occur.

“Although there has been recent commentary on the narrow issue of surcharging, we look forward to engaging with the Australian Treasury as they take on a greater role in leadership of the payments system,” Ms Rubin told investors at its annual general meeting on Wednesday.

“We consider that the Australian Code of Conduct, which commenced in March, and the extensive work completed by a number of wide-ranging reviews into the sector has established a best-in-class framework that is working as intended.

“To be clear, we are not anti-regulation but we believe regulation should be fit-for-purpose, reflective of the risk, and not stifle innovation and competition.

Afterpay chairman Elana Rubin. Picture: Sam Mooy.

“We look forward to working with regulators to achieve this.”

In March, eight of Australia’s largest BNPL companies – Afterpay, Zip, Openpay, Klarna, Humm, Latitude, Payright, and Brighte – became subject to the self-regulatory Code of Practice, which placed a cap on late fees and raised the minimum age of users to 18 years.

Zip and Afterpay are also likely to face a new parliamentary inquiry after a financial services committee said consumers could still be facing significant risks in using the services, which are largely unregulated compared to other credit products.

The group’s shareholders will meet again on December 6 to vote on its $39bn ($US29bn) takeover by US BNPL group Square, chaired by Twitter co-founder Jack Dorsey.

Mr Dorsey last month lauded Afterpay’s ‘ultimate superpowers’.

On Wednesday, Ms Rubin emphasised that the “complementary nature” of the two businesses presents an opportunity to grow both organisations via strategic synergies and deepen the relationships between merchants and customers.

BNPL leader Afterpay and rival Zip make their presence felt at a retail outlet in Sydney CBD. Picture: NCA NewsWire/Nikki Short

Square shareholders voted in favour of the transaction earlier this month.

Co-founder and co-CEO Anthony Eisen said the pandemic had forced the world to adapt to living and working differently while changing the way “customers relate to their finances and how they expect to participate in future commerce”.

“The next generation of customers trust Afterpay because we enable them to spend their own money on the things they want, with full transparency of their financial position, and without the fear of entering revolving debt or exorbitant interest.

“We are tremendously excited by the prospect of bringing together the ecosystems of these two fantastic businesses.”

“We can also see opportunities to share experiences and initiatives – whether that’s crypto, millennial investing, or omnichannel commerce.”

Co-founder and Co-CEO Nick Molnar said the “size and scale of the US retail economy makes it our biggest growth opportunity”.

“Demand for Afterpay ads in the US has certainly exceeded our initial expectations. There are more than 150 brands signed up ahead of the key retail holiday period.

“Early results show a lift of 20% in sales, on average, when brands choose to promote their products using Afterpay ads.”

“I cannot emphasise enough that the combination of what Afterpay has built, together with Square’s extensive customer and merchant base, is something that will supercharge our business and team 10 times over.”

Shareholder questions on potential future dividends were directed to Square, but Ms Rubin said both companies had historically focused on investing back into their respective businesses to scale globally and drive long-term returns.

Afterpay also remained committed to the APAC region and retains its Singapore foothold after recording a $2m impairment related to its Indonesia-focused EmpatKali acquisition in August 2020, which was unsuccessful in securing regulatory permission to operate.

Increased expenses in FY21 were attributed to investment in scaling global operations and growing underlying sales, especially in the US, “where BNPL is still less than 2 per cent of all payments in that region”.

“We don’t anticipate making the same level of investment in above the line advertising as we move through FY22,” Ms Rubin said.

Afterpay’s net transaction loss (NTL), a management metric that comprises gross losses, charge-backs and debt recovery costs less late fees, is coming down, investors were reassured.

For the last financial year, NTL was $132.6m or 0.6 per cent of underlying sales, an increase of point 2 percentage points above the FY20 measure, reflecting lower contributions from late fees.

“They now represent less than 0.4 per cent of underlying sales.

“Gross loss is another key input into NTL and that represented 0.9 per cent of FY21 underlying sales consistent with the prior period. Holding gross losses at 0.9 per cent is a strong result given that 6 million new customers and 43,000 new merchants were added to the platform last financial year,” Ms Rubin said.

For FY22, the focus would be on growing millennial and Gen Z consumer banking platform Money by Afterpay, Afterpay Ads and Afterpay IQ - a “sophisticated unsupervised machine learning algorithm” that processes transactions and assigns customers to individual personas based on their purchasing history.

Afterpay shares are more than 2 per cent higher at $119.95 at 2.42pm AEDT.