The share price for Afterpay Touch Group Ltd [ASX:APT] has seen a positive turnaround with an 8.96% leap since Thursday.
The company’s share price was boosted to $9.36 after it received a positive Goldman Sachs upgrade from a neutral rating to a buy.
Why did this happen to Afterpay’s share price?
Afterpay is going through a significant period of growth in Australia and the US. The payment instalment service, popular with millennial shoppers, has 1.8 million customers in Australia alone and is used in 14,000 stores. Sales for the first half of 2018 neared $1.85 billion.
The company launched on the US market in May to great success. This was after US venture capital fund, Matrix Partners, agreed to invest $19.40 into Afterpay’s expansion into the US retail scene.
Australia doesn’t seem to be able to get enough of this business, a fact that the US market is no doubt aware of. The logic behind Afterpay is that customers are more likely to spend more when faced with the prospect of free credit, which can only be a plus for retailers.
It’s for this reason that Afterpay is quite attractive to younger shoppers — particularly those loyal customers who can’t have or don’t want a credit card.
What’s next for Afterpay?
Given the rising customer numbers, it may not be such a surprise that Afterpay has hit the US market on a high note.
However, Afterpay still faces challenges. ‘Buy now, pay later’ schemes like this one are not currently regulated by ASIC, and it’s unclear what kind of changes further scrutiny could add to their simplified model.
Afterpay has also previously been under fire by critics for ‘irresponsible’ lending practices, which could particularly target the younger demographic that they’re dependent on.
Though the company has stated that over ‘90 percent of purchases do not attract a late fee’, Afterpay has endeavoured to improve the customer experience by capping late fees.
The uplift in Afterpay’s share price could be considered high risk, but given the scale of the US retail market in comparison to Australia, there may be exciting times ahead for this fintech company.
For Money Morning
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