On 18 October 2018, Afterpay Touch Group Limited (ASX: APT) released its Press Commentary in relation to a proposed Australian Senate inquiry into parts of the finance sector. Following this news, the share price of the company increased by 15.419 percent as on 18 October 2018 (12:30 PM AEST).
The Company is very much supportive in the participation of any review so that differentiated nature of the Company’s services is clearly understood and an informed decision is taken. According to the company’s release ‘the buy now, pay later’ services of the company are highly differentiated from the services provided by the several other operators. By offering customers a fundamentally different proposition to traditional credit products, the company is promoting responsible spending.
The unique model of the company provides free services to customers if payments are made on time and the company do not charge interest or monthly fees. Moreover, the instalment periods are short and if payments are not made on time, it results in the immediate suspension of the customer’s account which means they will never be given revolving credit. The vast majority of the company’s revenue is coming from fees which are paid by retailers and merchants, it allows company to offer an interest-free product to consumers.
As per the company’s Press commentary, the majority of consumers are paying on time and they have never incurred a late fee. The late fees charged by the company are capped, minimal and in total are less than the costs company incurs when consumers don’t pay on time. Through this the company is promoting responsible use and discouraging late payments.
Afterpay supports the regulatory certainty for its unique business model which is benefitting millions of Australian consumers. In a recent submission to the Senate Economics Committee, Australian Securities and Investments Commission (ASIC) outlined key differences in “buy-now-pay-later” products and said that companies like Afterpay do not meet the definition of credit within the National Credit Code as they extend funds without charging fees or interest.
The Design and Distribution Obligations and Product Intervention Powers Bill 2018 which is currently before the parliament, would extend intervention powers to ASIC for NCC regulated companies which will allow ASIC to intervene into the market place if they believe a product has, or will likely, result in significant detriment to consumers.
Further ASIC also recommended that the intervention powers should be extended more to capture the companies that do not come under the jurisdiction of the NCC like Afterpay. The company is aware that the provision of such a power to ASIC will promote higher levels of consumer trust in the Afterpay’s services. Moreover, this will provide consumers an additional layer of protection without compromising the company’s business model.
The New Zealand Government also recognized that Afterpay’s model is different to traditional credit. Hence, the Government decided not to include Afterpay under local credit regulations as there is very limited evidence of harm. They said that they may extend their powers to intervene if any harm is identified in Afterpay service model.
APT’s shares traded at $13.10 with a market capitalization of $2.6 billion as on 18 October 2018 (AEST 12:30 PM).
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