When a customer uses Afterpay they pay the first of 4 installments at the time of check out. If they miss a payment they are cut off from using the service.
What Afterpay is finding in Australia is that 85% of customers are repeat customers. So yes its possible that someone will choose not to repay their Afterpay but if they are a regular user then they will lose out on using the service.
Bad debts are manageable even after being in operation for a couple of years. It's possible the US will have a different bad debt profile, I'm waiting to see how that goes.
Also worth keeping in mind that the amounts we are talking are not overly significant. A couple of hundred dollars. The repayments are linked to an account so to truly dodge a repayment a user would need to stop using their bank account and switch providers. Some may make the effort in doing so, to get a free pair of Air Jodrans as you put it, but so far this is not the case.
Lots of customers in the 18-30 range don't have or want credit cards, this is somewhat of an alternative. It's not only about these customers being unable to get credit or the like, it's also a trend in that market segment.
Afterpay is moving fast and grabbing market share. Yes competition is possible, like everything, and it exists, but I can't see any competition that has such a honed in strategy as Afterpay. Online fashion to start with and then we'll see how they go cracking other segments.
I still see this as speculative, but once we know more about US growth and the bad debt profile over there, I'll be much more comfortable with valuations.
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