Is the Afterpay Touch Group Ltd (ASX: APT) share price a buy after it called on regulators to do more?
Afterpay is making headlines after making a submission to the Senate Select Committee inquiry on Financial Technology and Regulatory Technology.
The buy now, pay later business explained to the committee that it processes more than 10% of all online retail purchases for physical goods and it has more than 30,000 partnerships with Australian retailers, large and small. It also now operates in the dental & optical spaces as well as other areas.
Afterpay has already achieved large growth in the US and UK, it has more customers in the US than Australia at the end of November 2019.
Whilst Afterpay acknowledged that Australia's regulators and regulatory frameworks are world-leading in many respects, the company said that there is an opportunity for regulators to "play a greater role in collaborating with new and growing FinTech and RegTech businesses to ensure that any regulatory concerns are addressed in a proportionate matter, and with a focus on good consumer outcomes and healthy competition rather than mere technical compliance with the law."
Afterpay pointed out that it's possible for a business to fail to technically comply with specific provisions in financial service laws without harming any consumers or its competitors. As a new business Afterpay is still developing the compliance function as it grows.
The company said that regulators have the challenge of how the regulatory framework should apply. Afterpay commented that the potential penalties that can apply to financial services now are enormous and the potential of a huge fine can spook investors plus seriously harm the continued growth of a company.
Afterpay said that FinTech companies are at a significant disadvantage compared with established institutions. Regulators can apply provide regulatory certainty by expressing their view about how a law should apply and that they are content for a business to rely on that view.
The BNPL business also noted that it doesn't like how just because Afterpay's model doesn't neatly fit into current regulations, it shouldn't mean Afterpay is described as "unregulated".
Afterpay also complained how banks are claiming customers who use Afterpay as higher risk when in-fact Afterpay customers are avoiding credit cards, using it as a budgeting tool and avoiding long-term high-interest revolving debt – if customers don't pay on time they're cut off from the service.
To rub it in, Afterpay said its default rate was 1.1% in FY19, which compares favourably to the major banks like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) as well as other traditional credit providers who are subject to responsible lending laws.
Afterpay has hired the former director of public policy and regulatory affairs to help with this, he was previously an ASIC executive.
Foolish takeaway
Investors seem to like what they read, sending the share price up by 0.6% at the time of writing. I'm sure the Afterpay share price will continue to be volatile during 2020, but if the company delivers on its potential then it could still be a decent share to buy. But there are too many unknowns for me to invest today.
