The Afterpay Touch Group Ltd (ASX: APT) share price took a 13% plunge an hour before market close on Friday. This follows the announcement that global payments behemoth Visa Inc would enter the buy-now, pay-later market by January 2020.
The point-of-sale (POS) financing market is starting to feel like a crowded place, with JPMorgan recently announcing that it will offer a POS finance feature through its Chase mobile app. MasterCard also acquired Vyze, a consumer financing solutions business in April to pursue the same market.
How does this affect Afterpay?
The Afterpay share price is likely to tread lower following the negative sentiment that global payments giant Visa and investment bank JPMorgan are entering the same market.
However, I believe Afterpay is a uniquely positioned product and a millennial-focused brand.
This isn't the first time that large multinationals have made an attempt to enter the POS financing market. In 2016, MasterCard announced the launch of its own MasterCard instalments, which it described as an "innovative way to pay that offers consumers flexible and convenient access to funds when needed." MasterCard instalments allowed cardholders to split transactions across equal monthly instalments. Sound familiar?
But the product and its features are besides the point. Afterpay has become an embedded Australian brand that is used by one in every four millennials. The company has a strong foothold in almost every brand we know and love, and is leveraging its experience and infrastructure to fast-track its United States (US) business.
The US business is generating approximately A$1.7 billion in annualised gross merchandise value (GMV) within 13 months of operation. By comparison, it took the Australian business approximately 3 years to achieve this outcome.
Furthermore, a recent Forbes article states that "Visa's bank partners, which issue all Visa-branded cards and hold the resulting loans on their balance sheet, will still control the loans, dictating the time period for installment payments, interest rates and late fees."
Therefore, I believe Visa has a different business model that aims to charge the consumer, versus Afterpay's model, which charges the merchants.
Foolish takeaway
The POS financing sector is getting heated – participants big and small want a slice of the $1.2 trillion market. However, these big names can't simply acquire a business or launch their own payment solution and expect it to be successful. I am confident that few readers today have heard much about MasterCard's instalment solution.
Afterpay is still a growth machine, with the ambitious goal of $20 billion in GMV by FY22. There will come a time when a buying opportunity will emerge. So in the meantime, keep the stock on your watch-list and wait patiently on the sidelines.
