Afterpay & its cheerleaders love to highlight that BNPL increases merchant sales.
The reality is that whenever consumers increase their aggregate debt levels, whether by CC, BNPL, or other means, merchant sales increase. But consumers' leveraging up is not a sustainable boost.
The reality is that whenever consumers increase their aggregate debt levels, whether by CC, BNPL, or other means, merchant sales increase. But consumers' leveraging up is not a sustainable boost.
If you give someone access to $500 in credit they didn't previously have, and they go and spend it, their spending will of course increase by $500 in the short term. However, they have to pay the $500 back, so it will reduce their future consumption. It simply pulls sales forward
The only other way in which it can boosts merchant sales is if they take market share off other merchants that don't offer APT. This cannibalistic benefit will only last as long as BNPL is not widely available. 100s of coys now offer BNPL services and that point won't take long.
The market environment & unit economics can change. They aren't fixed in stone, like a lot of investors seem to think they are today, in extrapolating forward current unit economics into a much larger TAM. They are subject to competitive forces & market evolution.
BNPL is an easily commoditizable product. It might look like there is a network effect today w good engagement metrics etc, but that can simply be due to D>S, and the environment can and will change over time with more players and different pricing structures in marketplace.
I might be wrong, but in my view you are fighting a losing battle if you expect to be able to sustain 4-7% merchant fees in the long term. Technology has the power to lower the cost of payments & consumer finance to levels that are a small fraction of that, and it eventually will
In comparing it's service to credit cards, APT also always conveniently omits the substantial customer rewards points CC customers obtain (which net back a large % of interchange), and also ignores that the high merchant fees ultimately get baked into end consumer prices.
In the CC business, you make very little money off customers that pay their bills on time each month & incur no interest/late fees. If by contrast, APT is to make a lot of money off such customers, it is because it's coming out of merchants & customers pockets.
The coys A$30bn market cap is therefore investors' current estimate of the present value of future consumer & merchant fleece-age, net of their costs. I don't think they will be able to succeed in ripping consumers & merchants off to that degree long term, but I might be wrong.
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