'Nothing to fear': Millennials' favourite Afterpay happy to be scrutinised

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'Nothing to fear': Millennials' favourite Afterpay happy to be scrutinised

By John Collett

Afterpay Touch Group, the ASX-listed “buy now, pay later” app , and major competitor, the listed Zip Co, say they have nothing to fear from a new Senate inquiry into their industry or the prospect that greater regulation could follow.

The share prices of the fintechs fell by up to 19 per cent on Wednesday after Fairfax Media broke the news that there will be Senate inquiry into payday lenders, debt management firms and the “buy now, pay later” firms.

Afterpay, the fintech co-founded by Nick Molnar, said in a statement to the ASX that it wants to be included in any extension of ASIC's product intervention powers to "promote higher levels of consumer trust".

Afterpay, the fintech co-founded by Nick Molnar, said in a statement to the ASX that it wants to be included in any extension of ASIC's product intervention powers to "promote higher levels of consumer trust". Credit: James Brickwood

The Senate inquiry will see if “current regulation…is adequate to protect vulnerable members of the community from financial harm." The Australian Securities and Investments Commission (ASIC) already has a separate review under way into the "buy now, pay later" industry that will be released by the end of this year.

The Afterpay app enables the immediate purchase of a good or service that is paid-off in four equal fortnightly instalments over the eight weeks for established customers.

While no interest is charged to consumers, there is a flat $10 fee on a missed payment and a further flat $7 a week later if the scheduled payment has still not been made.

About 20 per cent of its revenue comes from late fees and about 80 per cent from retailers who pay a fee to use the platform. Its success has seen its share price shoot from about $6.20 at the start of this year to more than $21 in late August.

In a statement to the ASX on Thursday morning, Afterpay noted that ASIC, in a submission to the Senate Economics Committee in August, had said that companies like Afterpay “do not meet the definition of credit within the national Credit Code” as they “extend funds without charging fees or interest”.

Larry Diamond, co-founder of Zip Co, said the company is well placed react to anything that comes from the ASIC review or the Senate Inquiry

Larry Diamond, co-founder of Zip Co, said the company is well placed react to anything that comes from the ASIC review or the Senate Inquiry Credit: Phil Carrick.

There is a bill before parliament giving ASIC more powers to intervene if it thinks a financial product is not in the best interests of consumers. ASIC wants the intervention powers extended to companies that do not come under the jurisdiction of the National Credit Code, such as Afterpay.

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Afterpay has been talking to ASIC for some time, saying it wants to come under the regulator's product intervention powers as it would "promote higher levels of consumer trust in newer services such as ours".

It would also "afford consumers an additional layer of protection without compromising our business model".

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Zip Co told the ASX on Thursday morning, after its share price had dipped 12 per cent on the Wednesday afternoon, that it is a “responsible credit provider".

And that “for every application the company ensures that its products are appropriate for the customer and that each customer can comfortably afford the repayments”.

It conducts credit and identity assessments, including a credit bureau check on every applicant.

The fintech has three products, Zip Money, which charges interest with long interest-free periods and is regulated by ASIC under credit laws and Zip Pay which, instead of charging interest, charges a flat $5 month account fee and late fees.

Larry Diamond, co-founder and chief executive of Zip Co, told Fairfax Media that only 1 per cent of its revenue comes from late fees.

He said that Zip Pay was to become regulated, there would be little or no disruption to the business.

"We are confident in our [business] model - we designed the Zip products with responsible [lending] at the epicentre and we have built a sophisticated engine that can credit-assess all applicants," he said.

Consumer groups have voiced concerns about the buy now, pay later apps.

Mr Diamond said Zip Co is "very well placed to react to anything that comes out of the ASIC review or the Senate inquiry because of the way that we design our products".

The statements from the two market leaders appear to have helped assuage fears that their business models may be affected by the Senate inquiry.

By the close on Thursday, the share prices of Afterpay and Zip Co had recovered about half of their Wednesday losses on an otherwise flat day for the market overall.

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