Afterpay Touch Group Ltd (ASX: APT) has made its appearance in the Senate inquiry, is it now safe from regulation?
Afterpay Touch is the owner of the popular “buy now, pay later” app. As of 2018, Afterpay had over 2.5 million registered users world-wide, making it one of Australia’s true technology success stories.
What happened in the Senate inquiry?
Competitor Zip Co Ltd (ASX: Z1P) said that the buy now, pay later industry should follow a reduced version of responsible lending obligations. Peter Gray, Zip’s co-founder, said the industry should verify customer identities, income and credit histories.
But Afterpay was having none of it. Afterpay said there shouldn’t be a blanket approach to all providers because they are different.
According to the AFR, Afterpay co-founder Anthony Eisen said: “Some in the sector charge interest, Afterpay does not. Some allow debt to revolve, Afterpay does not. Some have very high spending limits – up to $30,000, Afterpay does not.
“The most a person is allowed to spend on Afterpay is $2000, with single transactions limited to $1500. Afterpay’s average purchase price is $150.”
Another of the differences that Mr Eisen referred to was that Afterpay makes 75% of its revenue from merchants, whereas competitors like Zip had around 60% of their revenue come from the customer.
However, an ASIC report did show that around a quarter of Afterpay revenue (in FY18) was a consequence of late fees, compared to only 2% at Zip. Afterpay has recently introduced a cap to late fees and Afterpay recently said late fees had reduced to 20% in FY19.
Afterpay said it doesn’t do traditional checks like a typical lender, instead it looks at purchases real-time and updates its records as customers repay their outstanding amount on time.
Is Afterpay now a buy?
One of the near term risks, being regulated, appears to have subsided somewhat.
But with the share price rising by over 33% over the past month from an already-expensive valuation it looks expensive. To justify the current price Afterpay will need to continue its success in the US and do quite well in the UK too.
Afterpay is growing nicely, but it has a price to match. Better-priced growth options for your portfolio could be the exciting growth shares revealed in the report below for free.
2 ASX growth shares rising rapidly
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