Afterpay’s heyday might be over but it’s still on track to transform into a successful mature business
A blissful period of soaring revenues, light-touch regulation and a rocketing stock price looks about to end at Afterpay.
A substantial report from the Australian Investments and Consumer Commission has laid claim to patrolling at least some aspects of the business which is enormously popular among retailers and younger consumers.
ASIC has said it will use product intervention powers when necessary on Afterpay and its smaller rivals. However, ASIC held back from putting the group under full control by raising the prospect it may some day be brought under the National Credit Act … but not for now.
Though Afterpay has become a $3 billion company after its stock went from about $4 a share a year ago to near $13 today, just how it all works — and who it works for — has been something of a mystery until the release of this ASIC report which easily doubles as an industry research survey.
Clearly the 20,000 retailers on Afterpay’s books — along with millions of consumers — have taken to its simple formula where a product is taken immediately but paid for in four fortnightly instalments. There are no interest rates, but there are “missed payment” fees which make up 25 per cent of Afterpay’s revenue.
ASIC reveals that the sweet spot in this new area of consumer finance is fashion for women, with 57 per cent of customers female and 42 per cent male, while the prime age target group is between 25 and 34.
Overall business growth has been remarkable with total transactions moving from 50,000 to 2.9 million since April 2016. No wonder Afterpay reported a 390 per cent increase in revenue last year, though the regulator would surely have raised an eyebrow to discover that 23 per cent of all payments in this space are made by credit card.
Under the new product intervention regime, which Afterpay will now fall under, the company will have to conduct responsible lending checks on customers to check their financial position before they start using the service.
After an embarrassing incident where it became clear the company did not do ID checks, Afterpay has already outsourced ID checks to an external third party.
ASIC also points out some troubling dimensions within the “buy now, pay later” sector without naming individual companies. For example, among issues that ASIC regards as “potentially unfair” to customers were providers who “held the consumers liable for unauthorised transactions, even when the provider knows — or suspects — the transaction may be unauthorised”.
Under ASIC’s new plan, the regulator will monitor and intervene in extreme cases such as halting the sale of a new product, but fears that Afterpay would be stopped in its tracks by a wave of compliance cost will be allayed.
Rather, there is the prospect of Afterpay in Australia becoming a successful mature business as opposed to the spectacular breakthrough product it was in its early years.
Overall, the tone of the ASIC report is even-handed. While Afterpay appears to have made visible efforts to deal with some — if not all — regulation issues.
Afterpay closed little changed at $12.76.
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A blissful period of soaring revenues, light-touch regulation and a rocketing stock price looks about to end at Afterpay, the phenomenally successful “buy now, pay later” company listed on the ASX.