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The Buy Now Pay Later (BNPL) sector is under the lens of the Australian regulatory authorities, and an inquiry into Credit and Financial Services Targeted at Australians at Risk of Financial Hardship has been initiated. The Senate Economics References Committee released the report on 22 February 2019 post the market trading hours. The Senate committee highlighted the need for a separate regulatory framework outside of the National Credit Code for the BNPL sector.
Australiaâs leading player in the BNPL sector, Afterpay Touch Group (ASX: APT) has welcomed the report findings and recommendations. Afterpay reported that the Senate Committee report recommendations did not materially impact the companyâs business or its business model. The market reacted positively to the news, and the shares of APT closed at A$20.500 (as on 25 February 2019) up by 19.186% on ASX vs the previous close.
The Senate report highlighted the need for the service providers to find ways to collaboratively utilise technology and share information to make sure that a small segment of the population is prohibited from using services that are not suitable for them; the suggestion was welcomed by APT.
The Senate committee recommended that a regulatory framework be formed for the BNPL sector and the suggestions with this regard were:
- BNPL players appropriately consider consumers' personal financial situations before credit extension.
- Consumers have access to dispute resolution mechanisms.
- Providers offer hardship provisions.
- Products on the BNPL platform are affordable and provide value for money.
- Consumers are adequately informed, prior to entering into agreements, about their terms and conditions.
In reply to this suggestion, Afterpay highlighted in its media release that its strong inbuilt customer protections are in many respects ahead of the Senate committeeâs recommendation requirements, aided by technology.
Afterpay produces a lower default rate, and it is validated by its industry-leading default rate of less than 1.5% which is efficient at protecting the customerâs interest. Also, the business model augurs well with providing value for money since Afterpay is majorly depended on charging merchants as opposed to the customer. APT also mentioned that its services were free for those who paid on time and their late fees were proportionate to the incurred costs, unlike others cited in the Senate committee report.
The Senate committee also recommended that the BNPL sector develop an industry code of practice. The company welcomed the recommendation since it believed that it would lead to an overall improved industry collaboration with its peers and in turn a better understanding of the customer profiles.
Afterpay welcomed the Senateâs committee recommendation of including BNPL sector into the product intervention powers, currently proposed in the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2018 legislation. The company stated that it is looking forward to the legislation being enacted soon.
Afterpay is set to announce its interim results on 26 February 2019, and further comments regarding the Senate committee recommendations could be expected from the management during its media interaction.
The companyâs market capitalization stands at A$4.03 billion. The Stock price for the 52-week low has been noted at A$5.260 and the 52-week high price at A$23.000. The earnings per share of the company stands at -0.040 AUD. The stock has provided an impressive YTD return of 43.33% till date to its investors.
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