Afterpay reckons this 1 number shows its 'moat'

One metric shows stark difference between the Australian company and both its old school and buy now, pay later rivals.

Red paper plane zooming ahead of an army of white paper plane competition

Image source: Getty Images

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Afterpay Ltd (ASX: APT) showed off a statistic on Thursday it claims sets it apart from its rivals.

The buy now, pay later (BNPL) provider displayed the evidence in its results presentation, where it announced a 112% boost in sales to hit $11.1 billion.

The table shows Afterpay only receives 14% of its revenue from customer fees, compared to more than 60% for its BNPL rivals and 80% for credit cards.

Provider Income from customer fees Income from merchant fees
Afterpay 14% 86%
BNPL US competitor 1 67% 33%
BNPL US competitor 2  67% 33%
BNPL Australia competitor 63% 37%
Credit cards 80% 20%
Source: Afterpay. Table created by author.

Afterpay chief executive Anthony Eisen said this differentiates the service from both old world and new world competitors.

"We don't need customers to lose for us to win," he said.

"We don't rely on customers to go into revolving debt to make money."

Eisen said this has been the philosophy throughout the company's 5-year existence.

"We don't charge interest. We cap late fees. We still, as we have from day one, suspend accounts when a single payment is missed. The idea is you use Afterpay to own something – you don't use it to rent something."

The average order is worth $153, which Afterpay considers a low amount, and the average outstanding balance is just $190.

"We only let customers spend more if they demonstrate good behaviour."

The moat keeps rivals and regulators away

Of course, it is in Afterpay's interests to continue to push the line that it is not a credit provider.

The company is still co-operating with the Australian Securities and Investments Commission and AUSTRAC in their enquiries into the BNPL sector.

Its business model would be substantially impacted if authorities decided Afterpay and its rivals required the same level of regulation as traditional credit.

Eisen said its BNPL competitors largely had the same motivations as old credit card providers.

"When you look at traditional credit models, they make more money when consumers spend beyond their means or when they miss payments."

Afterpay claims that on home loan applications, spending on its platform is counted as an expense. This is compared to a credit card, which results in a loss in borrowing power for the applicant.

Afterpay's share price dipped Thursday morning after the release of its financial results. It has since recovered to be 0.85% up at 3.38 pm AEST, to trade at $91.49.

Motley Fool contributor Tony Yoo owns shares of AFTERPAY T FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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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