Pushpay Holdings Ltd (ASX: PPH) shares and Afterpay Touch Group Ltd (ASX: APT) shares both use technology to make payments easier for consumers, but there are two reasons I prefer Pushpay.

About Pushpay and Afterpay

Afterpay Touch is the owner of the popular “buy now, pay later” app, allowing consumers to split the cost of products into more affordable amounts. As of early 2019, Afterpay had over 3.5 million registered users worldwide, making it one of Australia’s true technology success stories.

Pushpay is a New Zealand based donation systems and software business for religious, not-for-profits and education providers in the US, Canada, Australia and New Zealand. Pushpay is used by over 7,000 churches worldwide. The average gift is $192.

Here are two reasons I think Pushpay is a better buy.

1. Valuation

The common argument against buying Afterpay shares is valuation. I’m using it again because I think it’s a good argument. Neither Afterpay or Pushpay currently make a profit, so there are no PE ratios to compare.

However, looking at the price-to-sales (P/S) ratio can provide a rough comparison. Pushpay currently has a P/S ratio of 10.9x, compared to Afterpay’s P/S ratio of 52x.

While I don’t think Pushpay shares are particularly cheap at the moment, they’re certainly cheaper than Afterpay shares.

Another small note is Afterpay’s debt-to-equity ratio of 88%. While this is not a large amount of debt, Pushpay has no debt and personally, that’s something I look for in a company -– little or no debt -– so I see this as an advantage as well.

2. Ethics

The second reason I prefer Pushpay to Afterpay is more personal and subjective; ethics.

There is an argument that Afterpay provides a valuable service to low-income earners and provides a method of paying for goods that are otherwise unaffordable. As a former debt collector, I don’t buy this argument.

I think vulnerable people can easily be convinced to use a service that doesn’t actually help them and can adversely affect their financial situation. To be clear, I’m not saying Afterpay is predatory or unethical, it’s just not something I’m comfortable with.

In their 2018 annual report, they stated: “Merchant Fees represented approximately 75.6% of Afterpay’s income for the twelve-month period ending 30th June 2018, with the remaining 24.4% principally comprised of late fees charged to customers who do not make their agreed instalment payments on time.”

For me, that percentage is far too high and is the impact of essentially offering credit -– without calling it credit –- to consumers without assessing their means to pay.

Pushpay is something I’m more comfortable with, making it easier for consumers to donate to a cause they believe in. While Afterpay allows consumers to purchase products they couldn’t previously afford, Pushpay simplifies a payment that the consumer was already making.

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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).

Disclaimer: At the time of writing, Max does not own shares in any of the companies mentioned.