The Afterpay Ltd (ASX: APT) share price is down after the latest report from ASIC.
What happened?
Afterpay made an announcement today regarding the latest report from ASIC in relation to the buy now, pay later (BNPL) sector.
The report said that ASIC’s new product intervention powers and the upcoming design and distribution obligations, which focus on consumer outcomes and harms rather than imposing compliance obligations, will play an important role for industry self regulation with broad industry support and commitment to ensure good consumer outcomes.
Afterpay pointed out that whilst it’s the largest of BNPL businesses profiled, being 73% of the total of BNPL transactions, it only represents 27% of the related consumer debt.
The BNPL business said that key metrics continue to improve which suggests positive consumer outcomes since ASIC’s review period of 2018 to 2019. Afterpay claims its gross loss is currently industry leading (being less than 1% globally) and late fees as a percentage of underlying sales has reduced to less than 14% globally in FY20.
Financial stress for some consumers?
The Australian Financial Review pointed out that the report showed that one in five users of buy now, pay later products are missing payments and more than 1.1 million transactions in 2018 to 2019 incurred multiple missed payment fees.
Afterpay said that its research identified the potential for financial stress among users of different financial products categorised as BNPL. Afterpay’s own research of 144,000 Afterpay customers found that there is no casual link between spending on Afterpay and changes in spending on essentials. Afterpay said it has never enforced a debt nor does it sell debts to collection agencies.
Conclusions
Afterpay said the ASIC report concluded that surcharging and price inflation practices are more likely to occur for higher value purchases and/or where the price of goods is less transparent and negotiable.
I think investors need to be cautious about what regulators and governments may do or recommend in relation to the BNPL sector.
The bigger the BNPL sector becomes, the more likely it is come under the microscope, particularly if more people are facing financial hardship.
Afterpay has done great, but there are other ASX growth shares in the payment space I’d rather invest in such as Pushpay Holdings Ltd (ASX: PPH) or EML Payments Ltd (ASX: EML).
