Buy Now Pay Later Concept:
Buy now pay later is a rapidly growing industry in Australia, which enables the consumers to buy goods and services immediately and the payment for the bought products can be made over time.
Buy now pay later services are provided by the retailers, as well as the service providers. The payment for the goods and services can be made in instalments across a span of several weeks. In case, a consumer makes a purchase of any high-value product, then he/she can pay for it over a longer duration of time.
Australian companies providing buy now pay later services:
- Afterpay Touch Group Limited
- Certegy Ezi-Pay (a part of the ASX listed FlexiGroup Limited (ASX: FXL))
- Openpay Pty Limited
How does buy now pay later payment services work?
Buy now pay later services are provided by the retailers or service providers at the time of online shopping, as well as in-store shopping. The only thing, the consumer has to do is to apply and set up a plan via an app of the provider or through the website while shopping online. In case of offline shopping or in-store shopping, the services can be obtained through a shop assistant who would set up the application on behalf of the customer. The service provider usually contacts the customer once the application gets approved.
The customers opting for the services for the very first time are required to provide their bank or credit card details, so that their payments are deducted.
In case, the customer does not like the purchased product, he/she would need to go through the return policy procedure of the shop or service provider. The customer also needs to make sure that the repayment is made on time else it would add up to the cost.
ASIC review on Buy Now Pay Later services:
As per one of the releases by ASIC in November 2018, it was found that there was an increase in the number of customers from 400,000 to 2 million from FY2015-2016 to FY2017-2018 period. These customers were in the age bracket of 18 to 34 years. As per ASIC, these services could result in a few customers to turn out to be monetarily overcommitted and accountable to compensating late fees. One out of the six customers had either become insolvent, victim of delayed bill payments or have had borrowed extra money as a result of these services. Most consumers believe that through these services they would be able to buy luxurious items than they would otherwise and have been noticed spending more than usual. The providers of such services often take advantage, under such circumstances after studying the behavioural pattern of the consumers so that they influence them to buy without their careful understanding of the costs.
ASIC also identified the exponential growth in the industry, along with the associated risks which is the key focus of ASIC in this industry. ASIC had reviewed six providers of this service mentioned above to understand the industry, as well as identify the probable risk to the customers. The performance of these providers was tested with respect to transparency, dispute resolution and hardship, and it was found that these providers have made improvements that would be beneficial for the consumers. ASIC would continue to gather data to keep an eye on the adequacy of consumer protections along with any review amendment made by these providers.
Recent Updates on Afterpay Touch Group Limited (ASX: APT)
Afterpay Touch Group Limited (ASX: APT) on 8 October 2019 announced the resignation of its Director, David Hancock with immediate effect.
David Hancock joined the organisation on 30 March 2017 post Afterpay and Touchcorp merged, taking over the role of Independent Non-Executive Director of the company. He was also the Group Head for two years till 30 June 2019. After providing the services to the company for many years, he stepped down as a director. He would keep on playing the role of a consultant in the company.
Why is the stock under limelight?
APT is under limelight since it received a notice from AUSTRAC (Australian Transaction Reports and Analysis Centre) to make an appointment of an external auditor who would be in charge of carrying out its Anti-Money Laundering/Counter Terrorism Financing (AML/CTF) compliance. The company is being also questioned by ASX at the various interval with respect to any update from AUSTRAC.
Recently, APT was queried by ASX with respect to the changes in the price of its securities along with its ASX release related to AML/CTF matters subjected as ‘AUSTRAC Update – Interim Report.’
On 25 September 2019, APT announced that the confidential interim report related to the AML/CTF matters had been provided by the external auditor Mr Neil Jeans to AUSTRAC. Mr Neil Jeans is one amongst the three specialist auditors who was nominated by APT as advised by AUSTRAC.
In the announcement, the company again confirmed that it did not identify any money laundering or terrorism financing activity which took place through their system.
Apart from these, the company remains under limelight because of its FY2019 results. Below are the FY2019 period highlights:
- The international underlying sales of APT rose by 140 percent, standing at $5.2 billion.
- The active consumers of APT surged by 130 percent to 4.6 million.
- By 30 June 2019, the position of active merchants increased by 101% to 32,300.
- The growth in the US and UK exceeded expectation. Major new merchant continued to on-board.
- The US underlying sales during the period was around $1 billion.
- APT also struck a strategic partnership with VISA to help the company in its upcoming growth and expansion as well as platform innovation in the US region.
- The company’s pro forma income increased by 115% to $251.6 million, and Net Transaction Margin increased by 126% to $126.1 million.
- The overall income of APT soared by 86% to $264.1 million. However, the company made a loss of $42.9 million in FY2019 which was $9 million in FY2018.
Source: Company’s Report
As highlighted earlier, buy now and pay later industry is growing exponentially, which seems very attractive from the investors' point of view. However, it should also be kept in the mind of the investors to thoroughly see the business models and the corporate governance before taking any decision.
The shares of APT have generated an excellent YTD return of 188.75%. During the trading session on 09 October 2019, APT was at a price of $34.900 (at AEST 3:54 PM), up by 0.722%. APT has a market capitalisation of $8.76 billion and approximately 252.68 million outstanding shares.
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