The Afterpay Touch Group Ltd (ASX: APT) share price has come under pressure again this morning.
At the time of writing the payments company’s shares are down a further 3.5% to $28.64.
This is despite the company providing the market with a response to reports of possible regulatory developments following the RBA’s 2020 review of payments regulation.
What did Afterpay announce?
Last week there was speculation that the RBA will investigate whether any new laws or rules need to be implemented on buy now, pay later businesses that don’t allow merchants to pass on surcharges.
This morning Afterpay responded to the news, advising that it is not currently subject to an RBA inquiry or review process. Furthermore, management said that it welcomes the opportunity to engage with the central bank as part of its broad based, periodic review of the payments industry next year.
It then took this opportunity to defend its business model.
According to the release, the company believe its “business model provides a highly customer centric service that is based on trust, loyalty and responsible spending habits. This approach is developing a high-quality and frequently returning customer base, with low outstanding balances and industry leading loss rates.”
“Contrary to traditional credit models, Afterpay is a free service for customers who pay on time. Afterpay generates the majority of its revenue from merchants who choose to provide Afterpay as a service, rather than merely a form of payment,” it added.
But it isn’t just consumers that benefit. The company believes the service offers material benefits to retailers.
This includes leveraging Afterpay as a “marketing channel to millions of hard to reach core millennial and Gen Z consumers.” The company revealed that it directs millions of leads per month to many thousands of small to medium businesses.
It also “promotes and participates in retail events on behalf of its merchant partners and provides data insights that improve the ability of merchants to reach and interact with their existing and newly referred customers.”
Another benefit is that it facilitates “higher conversions and average order values” and “guarantees upfront payment to all of its merchants and covers all fraud and nonpayment related risks.”
Finally, it notes that it provides a service that sits above the existing payments infrastructure. As a result, the company pays card scheme related processing costs as part of delivering its service.
Unfortunately, this response doesn’t appear to have quashed regulatory concerns. As well as Afterpay, the Splitit Ltd (ASX: SPT) share price and the Zip Co Ltd (ASX: Z1P) share price have also dropped notably lower this morning.
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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO and ZIPCOLTD FPO. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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