Afterpay Touch: A To A Greater Extent Than Expensive Solution To An Existing, Solved Problem
February 06, 2020
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Afterpay Touch (APT AU) is a stock that has acquired a cult next inward recent years. The shares receive got risen spectacularly, too catapulted the company's marketplace capitalisation to an astonishing A$10bn - almost forty times trailing revenues (there are no earnings - the companionship lost near A$40m final twelvemonth on revenue of $260m).*
To the uninitiated, APT is an ASX-listed fintech 'buy right away pay later' (BNPL) payment system/platform, that styles itself every bit a replacement to traditional credit cards. The value proffer from the client side is that consumers tin purpose APT to purchase goods/services too pay dorsum the amount inward subsequent fortnightly installments, too dissimilar credit cards, practise so involvement gratis too without whatever pesky credit carte fees. They receive got been adding a lot of merchants to their network, every bit good every bit consumers alongside APT accounts, too this has created a putative two-sided network flywheel effect that has caused investors to salivate near the possibilities - especially every bit they get down to pursue international expansion.
The company's presentation materials are replete alongside stories of multi-trillion dollar addressable markets (indeed, inward the company's FY19 results presentation, y'all receive got to acquire near xxx slides inward earlier y'all acquire to whatever meaningful fiscal information, whereupon y'all larn that they lost money inward FY19). The companionship seems to envisage itself disrupting the traditional credit carte industry, too becoming a conduit through which trillions of dollars of consumer payments are made the footing over.
Going past times the company's portion price, a lot of investors obviously believe them, too receive got bought into the story claw line too sinker. There is solely i employment alongside the bullish narrative, though: the company's heart too soul production is truly a more expensive solution to an existing, solved problem, that truly makes the footing a worse rather than improve place. Long fourth dimension readers of this weblog testament know that I'm a skeptic of many putatively disruptive 'Valley' businesses, but I testament admit that at to the lowest degree most of them are attempting to brand the footing a improve place, too offering improve products/services at lower prices, fifty-fifty if most of them are losing money trying to practise it. APT is different, too I uncovering it real hard to squall upwards of whatever 'disruptive' concern models that receive got succeeded where their production is a to a greater extent than costly too inferior solution to existing alternatives, for obvious reasons.
Furthermore, the real factors which caused the companionship to relish to a greater extent than or less initial success inward edifice out its network do non scale, too are also exposed (as I testament discuss) to considerable regulatory risk. Indeed, every bit the companionship gets larger, rather than becoming to a greater extent than valuable too entrenched every bit network-effect businesses typically practise (and APT's portion cost anticipates), it testament truly increasingly undermine its merchant value proposition, too brand the telephone commutation structural weaknesses of its concern model impossible to ignore - potentially bringing the whole menage of cards tumbling down.
I testament admit i thing, however: from the consumer's dot of view, APT is clearly a keen production too inward many respects improve than a traditional credit card, for a real uncomplicated reason: in that location are no fees, too it allows y'all to borrow to pay for purchases without incurring whatever involvement (although the rewards programs associated alongside many credit cards demand to last forgone). APT too the bulls belabour this dot advertizement nauseam. The employment though is that this is non the cease of the story, every bit the number is not the consumer-side experience, but the fact that APT charges merchants 4%+ to remove APT payment. Indeed, the AFR has reported that APT charges merchants a fixed 30c transaction fee, summation a 3-7% sales committee (while APT's accounts signal it averages to a flake over 4%), which is significantly to a greater extent than than merchants typically pay to remove credit cards (which ranges from near 0.6% for large merchants to 1.5% for minor merchants, inward Commonwealth of Australia according to the AFR), or cash (0%).
APT mightiness at showtime appear to last saving consumers money (and last perceived that way past times consumers), but mortal has to pay for this 4%, too that mortal testament ultimately last the cease consumer, because merchants testament receive got no choice but to elevate prices to recoup this 'APT tax'. The bulls endeavour to deny this fact, but denials brand no economical feel (at scale). Most retailers earn inward the vicinity of 5-10% operating margins, too the manufacture is non going to settle for seeing to a greater extent than than one-half of its profitability stripped away too passed on to APT. And it makes no feel that a production every bit uncomplicated every bit APT's would, inward competitive gratis markets, allow it to capture to a greater extent than than one-half of the entire retail manufacture turn a profit pool.
In the long term, equilibrium manufacture margins are determined past times the complex interaction of a number of forces, including demand too supply, competition, manufacture cost structures, too the cost of capital. If 5-10% is the economical bird of margins for the industry, that is where it testament stay, too exactly similar if labour too rental costs were to ascent too demand to acquire passed on to cease prices to save manufacture margins, so it testament last if merchants receive got to pay a 4% APT taxation on turnover. The machinery mightiness last implicit rather than explicit ("our margins are nether pressure level - let's bump prices upwards slightly too come across if they stick"; rather than "let's lay prices upwards specifically to compensate for the APT tax"), but the outcome testament last the same either way: consumers testament ultimately cease upwards paying.
It is staggering that the APT bulls truly believe it is viable the footing testament motility to a province of affairs where merchants the footing over testament last paying a 4% transaction taxation to the likes of APT; retailers won't lay prices upwards to compensate; too that this is somehow innovative or disruptive, too testament stand upwards for an improvement to the footing every bit compared to the condition quot ex ante. The reality is that this is a much worse world - a footing where everyone pays much to a greater extent than for goods too services than they otherwise would, so companies similar APT tin bag a massive, parasitical middleman fee.
Why then, y'all mightiness ask, has the companionship achieved a bird of success/scale to date? For 2 reasons: (1) at a minor scale, its platform does offering early-adopting merchants to a greater extent than or less meaningful benefits that offset the high transaction costs; too (2) APT's contracts alongside merchants receive got restricted their powerfulness to impose a transactional surcharge when accepting APT payment. The old element inward a higher house contributed to merchant's willingness to acquiesce to the latter, but it is real probable that both of these 2 factors are fundamentally unsustainable.
It doesn't remove a especially deep bird of thinking to come across that the putative benefits for merchants are a fallacy of composition that don't scale. APT too the bulls are e'er quick to emphasise that APT allows merchants to boost their sales, but in that location are solely 2 mechanisms past times which this tin occur. Firstly, an APT merchant tin cannibalise the sales of competitors who practise non remove Afterpay. From the consumer dot of view, APT is a superior payment choice than using a credit card/cash, so if Merchant A accepts APT too competing Merchant B does not, consumers mightiness create upwards one's heed to store to a greater extent than oftentimes alongside Merchant A, allowing Merchant A to pick upwards marketplace portion at Merchant B's expense. However, the benefits of this don't scale. It's solely a affair of fourth dimension earlier Merchant B decides to remove APT every bit well, too so the cannibalistic effect disappears, but the 4% transaction fees practise not.
The minute way APT tin boost a merchant's sales is past times providing consumers alongside yet to a greater extent than or less other agency past times which to outspend their income. If a client lacks the cash or credit carte residue to purchase item X, without APT they testament receive got to go past times without. With APT, they tin right away 'afford' to purchase it. While inward the brusque term this testament indeed boost merchants' sales, the ultimate effect is only to describe frontwards consumers' purchases, too so inward the long term drives no sustained benefit.
Consequently, what nosotros are left alongside is simply a to a greater extent than expensive solution to an existing solved problem. What is that solved problem? Fast, convenient, secure, too cheap electronic payments, too ready access to unsecured credit lines for customers (credit cards). If y'all squall upwards near it at a high level, the showtime payment organization inward modern times was cash. Cash has (and soundless has) its advantages - for a start, it's gratis (no transaction fees), too relatively fast too simple. However, it has to a greater extent than or less disadvantages - especially inward the modern era: y'all can't purpose it to purchase things online; too y'all also can't purpose it to purchase big-ticket items that require consumer credit, which y'all are able to afford past times paying dorsum over time, but don't receive got the cash to pay upfront for today.
Credit cards were the solution to this, every bit good every bit other purpose cases (e.g. for people travelling). In the past, credit cards had several attendant disadvantages, however. They were non solely to a greater extent than expensive (requiring the acquiring of merchants; payment terminals; etc), but also importantly, they were slower to procedure than cash. However, alongside continued innovation, most of these disadvantages are right away disappearing. The emergence of 'tap-pay' credit too debit cards which tin procedure transactions virtually instantaneously has been especially material, too is both convenient for customers too of import for merchants, every bit it reduces queuing times at checkouts. Lower cost acquiring solutions (e.g. Stripe) are also emerging, too non ending upwards alongside a bag total of coins is also a important convenience practise goodness for customers. Credit too debit cards soundless cost to a greater extent than than cash, but the many advantages too convenience receive got increasingly outweighed them.
Not surprisingly, this has resulted inward credit too debit cards increasingly becoming a superior solution to cash, too is why Visa too Mastercard receive got thrived inward recent years, every bit the marketplace portion of credit/debit carte payments receive got risen, spell cash's marketplace portion has fallen. Furthermore, V/MA's global 'payment rails' represents infrastructure that other fintech companies tin construct upon to offering novel innovative fiscal products, too at relatively depression cost (V/MA transaction fees are solely inward the ballpark of 10bp; most of the cost of traditional credit carte fees are split upwards betwixt banks too merchant acquirers, every bit good every bit funding the cost of rewards programs).
In other words, fast, secure, too affordable digital payments, every bit good every bit on-the-spot consumer credit, is already a solved problem. And right away along comes APT, too wants to provide a similar solution at triple the cost. It doesn't brand whatever economical sense. The argue in that location is so much confusion is that (1) from the consumer perspective, they falsely believe they are saving money (as the APT costs are hidden too incorporated into retailer prices); too (2) many merchants evidence that they receive got benefited from APT, but every bit discussed, this was due to the early-adopter cannibalisation, too consumption pull-forward effects. What this agency is in that location is an incredible lack of clear thinking too prevalent misinformation alongside abide by to APT's concern model too its probable ultimate effects.
There are signs, however, that things mightiness last laid to change. The AFR has reported that the RBA is looking into measures that would prohibit BNPL providers such every bit APT from denying merchants the right to impose surcharges. The policy give-and-take has arisen inward response to advocacy from consumer protection groups, as good every bit merchant associations, who dissimilar the stock market, sympathise the province of affairs for what it is, too debate correctly that it results inward a lack of transparency too marketplace failure (consumers perceive the production to last free, when inward actual fact it is extremely costly, too this is resulting inward consumers making suboptimal decisions, too stifling the emergence of lower-cost alternatives). While the bulls receive got late been celebrating too back-slapping every bit APT has surged inward a higher house $40 - a valuation that requires the companionship earn too distribute $2bn a twelvemonth sustainably past times 2026 to generate a 10% render - near 10x the company's electrical flow revenue - the emergence of an existential adventure to the viability of the company's concern model has been ignored.
The thing that irked me most - too prompted me to write this article - was the fact that APT is lobbying hard to oppose this RBA policy measure, too the shameless, self-serving misinformation the companionship has served upwards to oppose the policy absolutely needs to last countered (contained inward the article previously referenced). It is of import to emphasise hither that no i is proposing that merchants must impose a surcharge - only that they receive got the liberty to practise so. Why is APT so rabidly opposed to their merchant customers having such choice? If the production is so keen too it delivers so many benefits to merchants, every bit APT claims, so sure the merchants would select of their ain testament to non impose i for commercial reasons, right? In that respect, APT's protestations talk volumes near the extent to which APT's administration recognises that the success of its concern model hinges critically on its powerfulness to go past times along to impose hidden transaction cost on customers.
In the article they brand many spurious arguments, including that the merchant costs should last compared to a greater extent than to what Facebook or Google charges for click-through sales leads, rather than alternative payment platforms (a laughable claim); too that the RBA's mooted restrictions would "stifle innovation, compromise consumer choice, too cut competition". This latter declaration is so bad, too so shamefully self-interested, that I squall upwards it has crossed the line into outright unethical acquit past times APT management, because the the truth is the exact opposite to what APT claims.
It is absolutely vital to the emergence of increased contest (which is a key driver of innovation), too hence enhanced client choice (and value), that in that location is cost transparency, too that in that location are avenues for competing payment platforms to proliferate too offering to a greater extent than attractively-price alternatives. Let's last real clear again: it is customers who are ultimately paying the 'APT tax', too customers paying inward cash (or alongside a credit card) are also beingness forced to pay it. From a consumer protection perspective, it is vitally of import that this taxation does non go past times systemic too entrenched, too acquire out customers alongside no choice but to pay it - even if they are non an APT customer. By making the cost transparent too explicit, y'all allow consumers to brand a to a greater extent than informed too efficient choice near which payment methods are the most optimal/cost effective. Consumers tin enquire themselves, ok I similar APT, but practise I similar it plenty to pay 4% more? That is the right inquiry to receive got customers ask.
Indeed, I mightiness fifty-fifty last prepared to go past times every bit far every bit arguing that regulators should insist on merchants imposing a surcharge (although importantly, restricting the magnitude of that surcharge to the actual cost borne from external payment providers). That would allow room for innovative too lower cost payment systems to emerge, because y'all would give consumers a reason/price incentive to change. Currently, that cost signal is lacking, which is i argue why nosotros receive got emerged alongside a global duopoly alongside V/MA. The way things currently work, where fees are hidden/built inward to prices that all customers pay - fifty-fifty those paying cash - the organization tends towards the creation of monopolies too excessively high fees. I for i truly hope regulators address this situation.
But if regulations change, too merchants receive got the liberty (but non the obligation) to impose a surcharge, testament they select to? The answer, I believe, is quite probable yes; it testament probable start slow, but a trickle testament eventually plow to a torrent. Why? Because those that impose a surcharge for APT testament receive got an of import cost wages over those that practise not, too testament hence last able to offering all customers lower prices. And if surcharges start to appear hither too there, it could chop-chop go past times an industry-wide trend. This testament especially last the illustration every bit the touted 'merchant benefits' start to fade, for the reasons previously discussed.
If surcharges indeed practise go past times a trend, the consequences for APT could last quite catastrophic. Their production testament right away last revealed to last what it has e'er been - a to a greater extent than expensive solution to an existing, solved problem. Furthermore, 'adverse selection' could also go past times a serious number for the company, every bit the customers that tin afford to pay y'all dorsum testament likely opt to pay cash or via credit card, every bit they testament relish lower prices past times paying that way (avoiding the surcharge), spell solely those heavily strapped for cash would concur to pay the surcharge. This could final result inward APT ending upwards alongside a portfolio of low-quality payday loans that endure real important defaults.
Time testament tell. I am a generalist roofing all industries too countries, too receive got solely spent a couplet of hours researching APT, so I mightiness last mistaken or receive got missed something. I am non brusque the stock, because for reasons discussed inward past times weblog posts, I believe shorting is unsafe inward a footing of ample liquidity too irrational exuberance, every bit many Tesla shorts receive got late had to in i lawsuit over again relearn the hard way. Many sensible people were wiped out shorting worthless dot.com stocks also early on inward 1999.
I would non last at all surprised to come across APT eventually autumn >90%, however, too it's also non impossible it goes to nada (although much less probable than only a >90% loss). One suspects that if APT were come upwards to last seen every bit a payday lender alongside weak underwriting discipline, rather than a hyped-up conquer the footing fintech payments platform/network, which a shift towards APT transactional surcharges could quite easily atomic number 82 to, it wouldn't merchandise at 40x sales.
LT3000
*It is also notable is that near i 3rd of the latter were belatedly fees charged to past times due borrowers, which APT volume every bit revenue prior to collection - fifty-fifty though the collectability of belatedly fees from delinquent borrowers ought to last considered questionable. This is real aggressive accounting.
To the uninitiated, APT is an ASX-listed fintech 'buy right away pay later' (BNPL) payment system/platform, that styles itself every bit a replacement to traditional credit cards. The value proffer from the client side is that consumers tin purpose APT to purchase goods/services too pay dorsum the amount inward subsequent fortnightly installments, too dissimilar credit cards, practise so involvement gratis too without whatever pesky credit carte fees. They receive got been adding a lot of merchants to their network, every bit good every bit consumers alongside APT accounts, too this has created a putative two-sided network flywheel effect that has caused investors to salivate near the possibilities - especially every bit they get down to pursue international expansion.
The company's presentation materials are replete alongside stories of multi-trillion dollar addressable markets (indeed, inward the company's FY19 results presentation, y'all receive got to acquire near xxx slides inward earlier y'all acquire to whatever meaningful fiscal information, whereupon y'all larn that they lost money inward FY19). The companionship seems to envisage itself disrupting the traditional credit carte industry, too becoming a conduit through which trillions of dollars of consumer payments are made the footing over.
Going past times the company's portion price, a lot of investors obviously believe them, too receive got bought into the story claw line too sinker. There is solely i employment alongside the bullish narrative, though: the company's heart too soul production is truly a more expensive solution to an existing, solved problem, that truly makes the footing a worse rather than improve place. Long fourth dimension readers of this weblog testament know that I'm a skeptic of many putatively disruptive 'Valley' businesses, but I testament admit that at to the lowest degree most of them are attempting to brand the footing a improve place, too offering improve products/services at lower prices, fifty-fifty if most of them are losing money trying to practise it. APT is different, too I uncovering it real hard to squall upwards of whatever 'disruptive' concern models that receive got succeeded where their production is a to a greater extent than costly too inferior solution to existing alternatives, for obvious reasons.
Furthermore, the real factors which caused the companionship to relish to a greater extent than or less initial success inward edifice out its network do non scale, too are also exposed (as I testament discuss) to considerable regulatory risk. Indeed, every bit the companionship gets larger, rather than becoming to a greater extent than valuable too entrenched every bit network-effect businesses typically practise (and APT's portion cost anticipates), it testament truly increasingly undermine its merchant value proposition, too brand the telephone commutation structural weaknesses of its concern model impossible to ignore - potentially bringing the whole menage of cards tumbling down.
I testament admit i thing, however: from the consumer's dot of view, APT is clearly a keen production too inward many respects improve than a traditional credit card, for a real uncomplicated reason: in that location are no fees, too it allows y'all to borrow to pay for purchases without incurring whatever involvement (although the rewards programs associated alongside many credit cards demand to last forgone). APT too the bulls belabour this dot advertizement nauseam. The employment though is that this is non the cease of the story, every bit the number is not the consumer-side experience, but the fact that APT charges merchants 4%+ to remove APT payment. Indeed, the AFR has reported that APT charges merchants a fixed 30c transaction fee, summation a 3-7% sales committee (while APT's accounts signal it averages to a flake over 4%), which is significantly to a greater extent than than merchants typically pay to remove credit cards (which ranges from near 0.6% for large merchants to 1.5% for minor merchants, inward Commonwealth of Australia according to the AFR), or cash (0%).
APT mightiness at showtime appear to last saving consumers money (and last perceived that way past times consumers), but mortal has to pay for this 4%, too that mortal testament ultimately last the cease consumer, because merchants testament receive got no choice but to elevate prices to recoup this 'APT tax'. The bulls endeavour to deny this fact, but denials brand no economical feel (at scale). Most retailers earn inward the vicinity of 5-10% operating margins, too the manufacture is non going to settle for seeing to a greater extent than than one-half of its profitability stripped away too passed on to APT. And it makes no feel that a production every bit uncomplicated every bit APT's would, inward competitive gratis markets, allow it to capture to a greater extent than than one-half of the entire retail manufacture turn a profit pool.
In the long term, equilibrium manufacture margins are determined past times the complex interaction of a number of forces, including demand too supply, competition, manufacture cost structures, too the cost of capital. If 5-10% is the economical bird of margins for the industry, that is where it testament stay, too exactly similar if labour too rental costs were to ascent too demand to acquire passed on to cease prices to save manufacture margins, so it testament last if merchants receive got to pay a 4% APT taxation on turnover. The machinery mightiness last implicit rather than explicit ("our margins are nether pressure level - let's bump prices upwards slightly too come across if they stick"; rather than "let's lay prices upwards specifically to compensate for the APT tax"), but the outcome testament last the same either way: consumers testament ultimately cease upwards paying.
It is staggering that the APT bulls truly believe it is viable the footing testament motility to a province of affairs where merchants the footing over testament last paying a 4% transaction taxation to the likes of APT; retailers won't lay prices upwards to compensate; too that this is somehow innovative or disruptive, too testament stand upwards for an improvement to the footing every bit compared to the condition quot ex ante. The reality is that this is a much worse world - a footing where everyone pays much to a greater extent than for goods too services than they otherwise would, so companies similar APT tin bag a massive, parasitical middleman fee.
Why then, y'all mightiness ask, has the companionship achieved a bird of success/scale to date? For 2 reasons: (1) at a minor scale, its platform does offering early-adopting merchants to a greater extent than or less meaningful benefits that offset the high transaction costs; too (2) APT's contracts alongside merchants receive got restricted their powerfulness to impose a transactional surcharge when accepting APT payment. The old element inward a higher house contributed to merchant's willingness to acquiesce to the latter, but it is real probable that both of these 2 factors are fundamentally unsustainable.
It doesn't remove a especially deep bird of thinking to come across that the putative benefits for merchants are a fallacy of composition that don't scale. APT too the bulls are e'er quick to emphasise that APT allows merchants to boost their sales, but in that location are solely 2 mechanisms past times which this tin occur. Firstly, an APT merchant tin cannibalise the sales of competitors who practise non remove Afterpay. From the consumer dot of view, APT is a superior payment choice than using a credit card/cash, so if Merchant A accepts APT too competing Merchant B does not, consumers mightiness create upwards one's heed to store to a greater extent than oftentimes alongside Merchant A, allowing Merchant A to pick upwards marketplace portion at Merchant B's expense. However, the benefits of this don't scale. It's solely a affair of fourth dimension earlier Merchant B decides to remove APT every bit well, too so the cannibalistic effect disappears, but the 4% transaction fees practise not.
The minute way APT tin boost a merchant's sales is past times providing consumers alongside yet to a greater extent than or less other agency past times which to outspend their income. If a client lacks the cash or credit carte residue to purchase item X, without APT they testament receive got to go past times without. With APT, they tin right away 'afford' to purchase it. While inward the brusque term this testament indeed boost merchants' sales, the ultimate effect is only to describe frontwards consumers' purchases, too so inward the long term drives no sustained benefit.
Consequently, what nosotros are left alongside is simply a to a greater extent than expensive solution to an existing solved problem. What is that solved problem? Fast, convenient, secure, too cheap electronic payments, too ready access to unsecured credit lines for customers (credit cards). If y'all squall upwards near it at a high level, the showtime payment organization inward modern times was cash. Cash has (and soundless has) its advantages - for a start, it's gratis (no transaction fees), too relatively fast too simple. However, it has to a greater extent than or less disadvantages - especially inward the modern era: y'all can't purpose it to purchase things online; too y'all also can't purpose it to purchase big-ticket items that require consumer credit, which y'all are able to afford past times paying dorsum over time, but don't receive got the cash to pay upfront for today.
Credit cards were the solution to this, every bit good every bit other purpose cases (e.g. for people travelling). In the past, credit cards had several attendant disadvantages, however. They were non solely to a greater extent than expensive (requiring the acquiring of merchants; payment terminals; etc), but also importantly, they were slower to procedure than cash. However, alongside continued innovation, most of these disadvantages are right away disappearing. The emergence of 'tap-pay' credit too debit cards which tin procedure transactions virtually instantaneously has been especially material, too is both convenient for customers too of import for merchants, every bit it reduces queuing times at checkouts. Lower cost acquiring solutions (e.g. Stripe) are also emerging, too non ending upwards alongside a bag total of coins is also a important convenience practise goodness for customers. Credit too debit cards soundless cost to a greater extent than than cash, but the many advantages too convenience receive got increasingly outweighed them.
Not surprisingly, this has resulted inward credit too debit cards increasingly becoming a superior solution to cash, too is why Visa too Mastercard receive got thrived inward recent years, every bit the marketplace portion of credit/debit carte payments receive got risen, spell cash's marketplace portion has fallen. Furthermore, V/MA's global 'payment rails' represents infrastructure that other fintech companies tin construct upon to offering novel innovative fiscal products, too at relatively depression cost (V/MA transaction fees are solely inward the ballpark of 10bp; most of the cost of traditional credit carte fees are split upwards betwixt banks too merchant acquirers, every bit good every bit funding the cost of rewards programs).
In other words, fast, secure, too affordable digital payments, every bit good every bit on-the-spot consumer credit, is already a solved problem. And right away along comes APT, too wants to provide a similar solution at triple the cost. It doesn't brand whatever economical sense. The argue in that location is so much confusion is that (1) from the consumer perspective, they falsely believe they are saving money (as the APT costs are hidden too incorporated into retailer prices); too (2) many merchants evidence that they receive got benefited from APT, but every bit discussed, this was due to the early-adopter cannibalisation, too consumption pull-forward effects. What this agency is in that location is an incredible lack of clear thinking too prevalent misinformation alongside abide by to APT's concern model too its probable ultimate effects.
There are signs, however, that things mightiness last laid to change. The AFR has reported that the RBA is looking into measures that would prohibit BNPL providers such every bit APT from denying merchants the right to impose surcharges. The policy give-and-take has arisen inward response to advocacy from consumer protection groups, as good every bit merchant associations, who dissimilar the stock market, sympathise the province of affairs for what it is, too debate correctly that it results inward a lack of transparency too marketplace failure (consumers perceive the production to last free, when inward actual fact it is extremely costly, too this is resulting inward consumers making suboptimal decisions, too stifling the emergence of lower-cost alternatives). While the bulls receive got late been celebrating too back-slapping every bit APT has surged inward a higher house $40 - a valuation that requires the companionship earn too distribute $2bn a twelvemonth sustainably past times 2026 to generate a 10% render - near 10x the company's electrical flow revenue - the emergence of an existential adventure to the viability of the company's concern model has been ignored.
The thing that irked me most - too prompted me to write this article - was the fact that APT is lobbying hard to oppose this RBA policy measure, too the shameless, self-serving misinformation the companionship has served upwards to oppose the policy absolutely needs to last countered (contained inward the article previously referenced). It is of import to emphasise hither that no i is proposing that merchants must impose a surcharge - only that they receive got the liberty to practise so. Why is APT so rabidly opposed to their merchant customers having such choice? If the production is so keen too it delivers so many benefits to merchants, every bit APT claims, so sure the merchants would select of their ain testament to non impose i for commercial reasons, right? In that respect, APT's protestations talk volumes near the extent to which APT's administration recognises that the success of its concern model hinges critically on its powerfulness to go past times along to impose hidden transaction cost on customers.
In the article they brand many spurious arguments, including that the merchant costs should last compared to a greater extent than to what Facebook or Google charges for click-through sales leads, rather than alternative payment platforms (a laughable claim); too that the RBA's mooted restrictions would "stifle innovation, compromise consumer choice, too cut competition". This latter declaration is so bad, too so shamefully self-interested, that I squall upwards it has crossed the line into outright unethical acquit past times APT management, because the the truth is the exact opposite to what APT claims.
It is absolutely vital to the emergence of increased contest (which is a key driver of innovation), too hence enhanced client choice (and value), that in that location is cost transparency, too that in that location are avenues for competing payment platforms to proliferate too offering to a greater extent than attractively-price alternatives. Let's last real clear again: it is customers who are ultimately paying the 'APT tax', too customers paying inward cash (or alongside a credit card) are also beingness forced to pay it. From a consumer protection perspective, it is vitally of import that this taxation does non go past times systemic too entrenched, too acquire out customers alongside no choice but to pay it - even if they are non an APT customer. By making the cost transparent too explicit, y'all allow consumers to brand a to a greater extent than informed too efficient choice near which payment methods are the most optimal/cost effective. Consumers tin enquire themselves, ok I similar APT, but practise I similar it plenty to pay 4% more? That is the right inquiry to receive got customers ask.
Indeed, I mightiness fifty-fifty last prepared to go past times every bit far every bit arguing that regulators should insist on merchants imposing a surcharge (although importantly, restricting the magnitude of that surcharge to the actual cost borne from external payment providers). That would allow room for innovative too lower cost payment systems to emerge, because y'all would give consumers a reason/price incentive to change. Currently, that cost signal is lacking, which is i argue why nosotros receive got emerged alongside a global duopoly alongside V/MA. The way things currently work, where fees are hidden/built inward to prices that all customers pay - fifty-fifty those paying cash - the organization tends towards the creation of monopolies too excessively high fees. I for i truly hope regulators address this situation.
But if regulations change, too merchants receive got the liberty (but non the obligation) to impose a surcharge, testament they select to? The answer, I believe, is quite probable yes; it testament probable start slow, but a trickle testament eventually plow to a torrent. Why? Because those that impose a surcharge for APT testament receive got an of import cost wages over those that practise not, too testament hence last able to offering all customers lower prices. And if surcharges start to appear hither too there, it could chop-chop go past times an industry-wide trend. This testament especially last the illustration every bit the touted 'merchant benefits' start to fade, for the reasons previously discussed.
If surcharges indeed practise go past times a trend, the consequences for APT could last quite catastrophic. Their production testament right away last revealed to last what it has e'er been - a to a greater extent than expensive solution to an existing, solved problem. Furthermore, 'adverse selection' could also go past times a serious number for the company, every bit the customers that tin afford to pay y'all dorsum testament likely opt to pay cash or via credit card, every bit they testament relish lower prices past times paying that way (avoiding the surcharge), spell solely those heavily strapped for cash would concur to pay the surcharge. This could final result inward APT ending upwards alongside a portfolio of low-quality payday loans that endure real important defaults.
Time testament tell. I am a generalist roofing all industries too countries, too receive got solely spent a couplet of hours researching APT, so I mightiness last mistaken or receive got missed something. I am non brusque the stock, because for reasons discussed inward past times weblog posts, I believe shorting is unsafe inward a footing of ample liquidity too irrational exuberance, every bit many Tesla shorts receive got late had to in i lawsuit over again relearn the hard way. Many sensible people were wiped out shorting worthless dot.com stocks also early on inward 1999.
I would non last at all surprised to come across APT eventually autumn >90%, however, too it's also non impossible it goes to nada (although much less probable than only a >90% loss). One suspects that if APT were come upwards to last seen every bit a payday lender alongside weak underwriting discipline, rather than a hyped-up conquer the footing fintech payments platform/network, which a shift towards APT transactional surcharges could quite easily atomic number 82 to, it wouldn't merchandise at 40x sales.
LT3000
*It is also notable is that near i 3rd of the latter were belatedly fees charged to past times due borrowers, which APT volume every bit revenue prior to collection - fifty-fifty though the collectability of belatedly fees from delinquent borrowers ought to last considered questionable. This is real aggressive accounting.