The Afterpay Ltd (ASX: APT) share price might be in danger after it was revealed that PayPal wants to take more market share.
What’s going on?
According to reporting by the Australian Financial Review, PayPal wants to grow its market share compared to other point of sale providers. This could mean difficulty for Afterpay, according to the reporting.
PayPal plans to launch a QR code application that will supposedly be more secure, faster and cheaper to implement at the register.
The AFR quoted John Lobb, who is the portfolio manager at Insync Funds. He explained:
“The introduction of QR codes by PayPal is significant because it boosts their presence in physical stores. QR code technology offers an additional layer of security for both parties, speeds transactions, and is generally cheaper to implement for sellers than other payment modes.”
Afterpay could also suffer an impact as PayPal launches its BNPL offering to Australian retailers this month. This combination of services could mean that customers choose PayPal over others in the payments space.
Mr Lobb said to the AFR that whilst it’s possible that Afterpay and other BNPL operators could also go for a QR code system, it would be expensive to implement. This would mean BNPL businesses would take longer to become profitable.
However, Afterpay believes that the Afterpay Card will be a good response to this.
What to make of the development
There are some big financial heavyweights that are vying for the top spot of payments in Australia and beyond.
Commonwealth Bank of Australia (ASX: CBA) is one of the players looking to muscle in on the BNPL and payments space.
Afterpay has a huge, global addressable market. It has millions of customers. The business does add value for the merchants and customers. It’s just difficult to know where the future is headed.
The company is priced as though it’s going to make lots of profit in the future. Just not in the shorter term whilst it achieves growth. But what happens in the future if competitors like PayPal take market share and/or force margins lower? Afterpay can’t keep growing rapidly forever – it’s starting to hit its customer limits in Australia. It needs to make profit in Australia to justify the valuation. Otherwise, how much is a business worth that never makes money?
Rising interest rates could also be a problem in the future.
I have my eyes on other ASX growth shares that are already making profit (or very close to it).
