The Afterpay Touch Group Ltd (ASX: APT) share price is up 90% so far this year on the back of a Senate inquiry result and high hopes for its expansion into the United States and the UK.
However, could Afterpay be more than just another hot ASX stock and be used to replace your credit card as a form of easy consumer credit?
What is Afterpay?
Afterpay was founded by Nick Molnar and Anthony Eisen back in 2015 and prides itself on being a leading provider of BNPL services to its over 3.1 million users with a near-instant sign-up process for the service.
Customers can sign up at checkout (online or in-store) with one of the 23,200 active Afterpay merchant partners and be approved straight away, allowing them to receive their desired goods straight away while only paying a fraction of the price (usually 25% up-front). The retailer receives full payment from Afterpay minus a 4-7% transaction fee and Afterpay takes on the contract between the customer for the remaining 75% of the purchase price, repaid via equal fortnightly instalments.
One of the keys to Afterpay's success has been its relatively low purchase limit of $500 for debit card users and $1,000 for credit card users, which has lowered the company's credit risk but also restricts which products can be purchased using the service.
Can Afterpay replace my credit card?
The Afterpay instant verification process is a big weapon in the company's arsenal and provided you can build up your transaction history with the company, the Afterpay service can be used in lieu of traditional credit products.
With a history of timely repayments, you can make those purchases at no extra cost – which is just like a credit card without the same level of risk.
However, the obvious drawback here is that this only applies to partner retailers of the service, and there will be many things you might want to get that small-scale credit for that just won't be possible.
I'm a big fan of Afterpay as a personal finance tool and think it does have a place in smoothing out your cash flows, enhancing your revenue and expense matching and ultimately levelling up your personal finances.
