Afterpay Ltd (ASX: APT), Zip Co Ltd (ASX: Z1P) and other buy now, pay later (BNPL) shares are soaring today. At the time of writing, the Afterpay share price is up 2.77% to $74.59. The Zip share price is up 2.40% to $5.98.
BNPL shares soar
Other BNPL shares are also enjoying the limelight. Openpay Group Ltd (ASX: OPY) shares are up 7.94% to $2.99, while 2020 5-bagger (at one point) Sezzle Inc (ASX: SZL) shares are up a healthy 10.63% to $6.45.
So why are BNPL shares going gangbusters today? It’s certainly a nice weather change that BNPL shareholders would welcome with open arms after a bruising week or 2.
According to reporting in the Australian Financial Review (AFR) today, the BNPL sector has just had a big win in the Australian Competition Tribunal. The tribunal has found that interest-free instalment products benefit the economy and don’t result in consumer harm.
The tribunal has been moderating a legal dispute between BNPL provider FlexiGroup Limited (ASX: FXL) and the Australian Competition and Consumer Commission (ACCC). The ACCC argued that BNPL providers should be required to be licensed and conduct responsible lending and credit checks on its customers in a similar way to traditional credit providers like the ASX banks.
However, the tribunal rejected these arguments in the following statement:
The tribunal considers that unregulated consumer credit in the form of ‘buy now, pay later’ finance is a significant and popular form of finance used by consumers to acquire new energy technology products desired by those consumers and therefore the supply of such finance provides economic benefits…
The evidence does not establish that the provision of such finance in connection with the supply of new energy technology products generates material consumer harm.
The tribunal went on to state that any consumer harm instead came from “unlawful selling practices” rather than the BNPL products themselves.
Although terms differ between the providers, BNPL products generally do not charge interest. Instead, they require that ‘loans’ or purchases be paid back in a series of instalments. Fees are only generally levied on late payments and on merchant sales.
Are BNPL shares a buy after this decision?
I think the decision today is a rather immaterial one for BNPL companies. Apart from potentially setting an international precedent, I don’t think it would worry the larger BNPL players like Afterpay and Zip if credit standards are applied to their products. These companies are concentrating their growth strategies on the populous and lucrative markets outside Australia like the United States and Europe.
Even so, I still think the BNPL share sector is a little overpriced as a whole, with a lot of speculative mania going on in recent weeks. I would love to enter into BNPL myself, but I’m waiting for the hype to cool before doing so.