Afterpay Business Update: Regulatory Compliance Overshadows Earnings

Afterpay Business Update: Regulatory Compliance Overshadows Earnings

Afterpay Business Update

Regulatory Compliance Overshadows Earnings

Afterpay Touch (ASX: APT) has recently released its business update providing a one year summary of its operations. Despite sales growing by more than 143% over the past year, share prices were rather subdued due to ongoing talks with regulators on money laundering issues. Prices dropped by more than 3% to $23.2 from $25.17/share at time of writing.

Afterpay Touch

Afterpay Touch (ATG) is a fintech operating in the United States, New Zealand and mainland Australia. Its core operation is centred on the concept of “buy now and pay later”. Its “pay later” business segment makes it possible for retailers to provide credit facilities without the traditional interest and upfront fees. The “pay now” segment specialises in fraud protection, regulatory compliance, digital payment and data analysis. Notable businesses in Australia that employ ATG products include 7-Eleven, Valora and Optus.

Fintech has been making a splash in the world of finance. The blurring line between finance and technology sees new applications, products and services that were previously not possible. In Australia, a set of stocks known as the WAAAX have been making headlines due to their explosive performance. Afterpay Touch, a part of this group, listed at $1/share and reached more than $27/share at its peak. The release of its latest business summary however sees its shares drop back down to $23.2/share.

Business Update: What you need to know

The biggest highlight from its global business comes from bumping underlying sales figures to an impressive $4.7 billion in the past 11 months, up 143% compared to the previous period. Over 4.3 million active customers were transacting with Afterpay, or 7900 new customers per day. 7400 new merchants signed up, representing an increase of 32%. This could not be possible without the company going global. Key metrics such as Gross Loss, Net Transaction Loss and Net Transaction Margin were all maintained in line with previous performance, and was achieved due to the contribution to underlying sales from international markets. Afterpay remains focused on its merchant and customer base, as well as innovation, global support and infrastructure.

Growth remains strong in the US. Afterpay managed to acquire over 1.5m active customers and 3300 merchants before end of May. Sales were approximately $780 million. Afterpay is also looking at expanding operations into the UK. The UK e-commerce market is now the third largest behind the US and China, and presents a good credit environment for Afterpay to take advantage of. Having completed a “soft launch” to positive feedback, Afterpay is now live and operating under the name Clearpay. The UK team will be headed by Fintech veteran Carl Scheible, and the launch will be rolled out in a phased approach. Within Australia and New Zealand, Afterpay is expanding its physical presence through brick and mortar stores. Afterpay is reportedly making healthcare more affordable, as more patients opt out of private healthcare.

Its successful expansion overseas however belies some regulatory issues that Afterpay is facing at the home. The Australian Transaction Reports and Analysis Centre (AUSTRAC) identified issues with regards to AML/CTF compliance, which covers anti-money laundering and counter-terrorism financing. This could be related to changes Afterpay made to anti-money laundering framework last July, which included amendments to external identity verification processes. The outcome is still pending. Regulatory risk has also been amplified as ASIC has been charged with regulating the “Buy Now Pay Later” industry and granted intervention powers. Regulatory pressures were the main contributor to the fall in share prices.

No real impact to Afterpay Touch

Despite the setback, the compliance issue represents a temporary market shock with no long term implications. The report states that, “Afterpay has not identified any money laundering or terrorism financing activity via our systems to date,” and the whole situation likely boils down to housekeeping issues. Afterpay has in the meantime employed a professional firm to review its AML/CTF framework.

By Oliver Ju

Click here for a one month free trial to our Lotus Blue Portal.

KOSEC does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information provided. KOSEC is intended to provide general information only. Please be aware that investing involves the risk of capital loss. This message is confidential and may be privileged. It is intended only for the use of the addressee named above. If you are not the intended recipient, any unauthorised dissemination, distribution or copying is illegal. We do not guarantee the security or completeness of information hereby transmitted and are not liable in either respect or in respect of any delay. Nothing in this message is intended as an offer or solicitation for the purchase or sale of any financial instrument. Any market prices or data, unless specifically verified and identified as such, are not warranted as to completeness or accuracy. Kodari Securities Pty Ltd (KOSEC) is a Corporate Authorised Representative (No. 399 556) of Longhou Capital Markets (AFSL No. 292464) which is regulated by the Australian Securities and Investment Commission (ASIC). KOSEC wishes to disclose that KOSEC and its staff may hold stock they recommend in their own portfolios and that any decision to purchase recommended stock should be done so after the purchaser has made their own inquires as to the suitability to their own requirements. Click here to view our FSG.
5 (100%) 1 vote

div#stuning-header .dfd-stuning-header-bg-container {background-image: url(;background-size: cover;background-position: center bottom;background-attachment: initial;background-repeat: no-repeat;}#stuning-header {min-height: 335px;}