Why Afterpay’s Share Price Has Climbed Over 18%
At time of writing, Afterpay Touch Group Ltd [ASX:APT]’s share price is up 18.34%, currently trading at $20.35.
The technology-driven payment company which offers a ‘buy now, pay later’ (BNPL) service to leading retailers, currently has over 3.1 million customers and more than 23,000 retails merchants on board.
Afterpay, along with other BNPL providers, were subject to a Parliament inquiry fuelled by the banking royal commission, which warned of potential misconduct in the small-credit sector.
If this was the case, Afterpay would likely have had to undergo extensive credit and identity verification checks, costing the company dearly.
Fears around possible negative findings caused a $1.3 million sell-off of Afterpay shares in 20 minutes last week.
But the final report of the Senate Economics References Committee — released after market close last Friday — confirmed the sector wouldn’t be brought under the provisions of the Credit Act.
Afterpay’s shares have soared as a result.
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Final report has recommendations for Afterpay
The report did state a list of recommendations from the Senate committee, namely having a separate regulatory framework for the small-credit sector outside of the traditional credit model.
Other recommendations included product intervention powers for ASIC (Australian Securities and Investment Commission), as well as access to dispute resolution mechanisms.
The report also suggested that companies provide hardship provisions, and ensure that their customers are well aware of the terms and conditions of the BNPL scheme.
In a response to the committee report, which Afterpay released on the ASX this morning, the company stated:
‘Afterpay supports the Committee’s recommendations relevant to the buy now pay later (“BNPL”) sector as they are sensible, appropriate and a proportionate policy response to the [BNPL] industry.’
Another recommendation was that these small-credit companies considered the personal financial situations of each customer.
Afterpay revealed their position on this recommendation as follows:
‘We take a person’s personal financial situation seriously and only increase limits after positive repayment behaviours are shown…
‘[O]ur late fees are proportionate to our costs, unlike others cited in the Senate committee report’.
What this means for Afterpay
Afterpay says it ‘does not expect any material impact on our business or business model based on the recommendations in the report.’
And Wilsons Equity analyst, Mark Bryan, has revealed the same belief:
‘The key risk from the Senate process were direct comments that BNPL should be rolled into the National Credit Code. This has not occurred.
‘The reality is it feels like any regulatory threat to BNPL has been kicked a long way down the road.’
For now, it seems Afterpay has dodged this potentially fatal roadblock. However, their interim profit report is due to be released later this week.
It will be interesting to see how these results impact the company’s share price.
For Money Morning
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