Buy Now Pay Later Service Providers Like Afterpay Cause A Downtrend In Credit Card Usage – What Investors Need To Know

Recently, the Reserve Bank of Australia released data on the number of credit and charge card accounts, according to them, the number of credit account for the November month has reached to 15.973 million which is lowest since March 2015. It is believed that the main reason behind the decrease of credit card numbers is the increased use of Buy Now Pay Later Platforms.

The Buy Now Pay Later industry is expanding exponentially which is why it caught the attention of Australian Securities & Investments Committee (ASIC) which did a review on this industry and recommended several suggestions which include the extension of product intervention powers of APRA to all credit facilities.

Recently, the Australian Banking Association launched a campaign against Afterpay Touch Group Limited (ASX: APT) and other 'buy now, pay later' service providers in which the association has urged the Australian government to bring these short-term loan operators under the same regulations as the big banks are.

Further, the coalition of consumer groups has also asked the Australian government to bring the participant of buy now and pay later industry under the National Credit Protection Act.

Recently, one of the leading participants of this industry, ZipPay, supported the idea of industry-wide responsible lending checks which was not backed by the Afterpay’s Executive Chairman and Co-founder Mr. Anthony Eisen as Afterpay consider its business to be fundamentally different than other competitors, further Afterpay does not support the model of full banking regulation.

As per Afterpay's economic adviser, Mr. Craig Emerson, the existing regulation of the financial services will not solve the problem as they are not even effective in protecting banks’ customers.

At the Annual General Meeting (AGM) of Afterpay held in November, the Chairman of Afterpay supported the idea of extending the Product Intervention Powers of APRA to regulate Afterpay and other buy-now-pay-later service providers for Australian consumers which will allow APRA to intervene in the market when they believe there is significant consumer detriment.

At the AGM, Afterpay informed that it is different from other competitors as it does not gain profit from customers and users and it makes money when customers buy which they can afford, pay on time and stick to their simple installment plan. Afterpay has rejected around 30 percent of the purchase requests it received during FY 2018, and about 95 percent of payments received in FY 2018 did not attract a late fee.

As per the RBA’s recently released data regarding credit card accounts, it is looking like the new generation of customers are trusting a new generation of financial services which has prompted a decline in the use of credit card and boosted the use of buy now pay later platforms like Afterpay.

Investors should keep a close eye on how the Australian Government is going to deal this situation wherein the Big banks of Australia are putting pressure of government to put Afterpay and similar companies under the same regulations in which the banks currently are.

Meanwhile, in the last one year, the share price of Afterpay increased by 100.15 percent as on 14 January 2019. APT’s shares traded at $13.500 (+3.525% intraday) with a market capitalization of circa $3.06 billion as on 15 January 2019 (AEST 4:00 PM).


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