The real reason the Afterpay (ASX:APT) share price is at a record high

Here's why the Afterpay Ltd (ASX:APT) share price is charging higher and just hit a new record high on Wednesday…

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The Afterpay Ltd (ASX: APT) share price has continued its positive run on Wednesday.

In afternoon trade the payments company's shares are up 5% to a new record high of $159.50.

This latest gain means the Afterpay share price is now up an impressive 34% since the start of the year.

Why is the Afterpay share price racing higher?

Investors have been fighting to get hold of Afterpay shares this month thanks largely to a bullish broker note out of Bell Potter.

According to the note, the broker has retained its buy rating and lifted the price target on Afterpay's shares to $168.50.

The broker made the move after looking deeper into the company's collaboration with Westpac Banking Corp (ASX: WBC).

"CBA should be worried"

Bell Potter believes that the Afterpay-Westpac collaboration should be worrying Commonwealth Bank of Australia (ASX: CBA).

It explained: "We see this as a step change in APT's product offering, and as a deliberate strategy for WBC to break CBA's stranglehold on the millennial banking market. We believe CBA should be worried, and perhaps is, which is seen with comments from their CEO Matt Comyn at the Banking Summit in November last year, who noted Afterpay as a potential threat to the banking sector over time."

"It perhaps also explains CBA's over $100m investment in Afterpay's competitor, Klarna. If APT is successful in launching white labelled WBC banking products in Australia it is likely the market will have confidence in APT rolling out a similar offering in all its jurisdictions, providing meaningful valuation upside," the broker added.

Will Afterpay stop at transaction accounts?

Bell Potter doubts that Afterpay will stop at just transaction accounts and has gone through potential options. This includes credit cards, personal loans, home loans, and investments.

In respect to credit cards, the broker believes it is unlikely Afterpay will move into credit cards. It notes that the company "has been a champion in its users avoiding a debt spiral."

It sees personal loans as a possibility, commenting: "We see personal loans, which are integrated with budgeting tools for specific purchases as a possibility. However, again, see it as too similar to credit cards and perhaps not a high priority."

Bell Potter believes home loans could be where Afterpay goes next. It explained: "We believe, over time, this is the logical next step. The economics and structure already exists for APT to create home loans via a white label arrangement, and to match it with savings products to help them reach their goal."

Finally, it also sees investment products likes those offered by RAIZ Invest Ltd (ASX: RZI) as an option. Bell Potter notes: "We see a balanced index fund with small investments as a possible option APT may explore overtime. This may be similar to what is offered by listed provided RZI (Raiz Invest)."

Given the huge market opportunity it would have in these markets, it isn't overly surprising to see the Afterpay share price scaling new heights.

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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