How long can Afterpay walk on water?

Written by Kapronasia || December 24 2020

Afterpay has to be feeling pretty good heading into 2021. It has become one of the largest buy now, pay later (BNPL) firms in the world and is growing fast just as the sector hits its stride. BNPL is not a new idea, but Afterpay has repackaged it neatly: four interest-free installments with no fees at all for customers as long as they pay on time. Retailers are willing to take on the risk of late or missed payments because Afterpay is bringing in more business for them. The company's sales grew 112% year-on-year in November to a record US$2.1 billion. Its share prices have risen roughly 270% to A$113.29 from A$30.63 when the year began.

Afterpay is capitalizing on the popularity of BNPL with younger shoppers aged 25-40. 40% of BNPL customers are under 30 and 77% under 45, according to The New Zealand Post. This demographic frequently shops online and is more inclined than older shoppers to pay with debit rather than credit cards. With BNPL, millennials feel that they can avoid accumulating undesirable credit card debt.

Thus far, no competitors have been able to slow Afterpay's momentum. Afterpay is the leading BNPL company in Australia and one of the market leaders in the United States, its fastest-growing market.

Aussie neobank Douugh and BNPL firm Hummm plan to challenge Afterpay in the U.S. with the launch of an alternative BNLP offering called Credit Jar that will be treated like a credit product. Douugh founder and CEO Andy Taylor said in a press release that Credit Jar will mark "a step change in the [BNLP] model" that will help improve a customer's credit score when repaid on time. Credit Jar "will only be made available to people who can easily service it as part of their everyday budget via our responsible lending criteria," he added.

Afterpay could also face increasing regulatory headwinds. It was among the BNLP firms named in a new report by the Australian Securities and Investments Commission (ASIC) that found more than 20% of BNPL customers missed a payment in past 12 months. The report also found that 20% of customers skipped meals because of overspending on BNPL while 15% said they had taken out new loans to complete their BNPL installment payments.

“Buy now, pay later platforms can’t just rely on the number of hardship applications to know if their customers are falling behind financially,” RateCity research director, Sally Tindall told Yahoo Finance Australia.