Global competitors and barriers to entry, page-16

Some interesting discussion in these threads generated by such a hot run in a currently viral story.

To me, Afterpay's big challenge will come with regulation, at least in Australia. In the Australian space, they have very effectively (and somewhat indiscriminately) exploited the regulatory free pass that 'no interest' credit has under existing credit legislation. Other lenders have to engage in responsible lending practices which Afterpay is presently exempt from under the National Consumer Credit Code (no interest and also term length are the 2 key mechanisms in achieving this).

ASIC action and consumer advocate publicity (working together probably) shows scrutiny is rising and specific regulation will come because the Afterpay model is heavily reliant upon late fees to potentially be profitable one day. It's currently questionable, based on their financial statements, that revenue from merchant fees can cover operating expenditure after adjusting for default rate. Thus the ideal consumer is someone who pays late, attracting additional fees, but does pay their account in the end. This sort of model will absolutely get regulated in the long run - at least in Australia, which is a caveat in favour of Afterpay as they expand as the US is unlikely to ever be as strict as we will be.

I don't hold and don't intend to, although do like what Afterpay can achieve for consumers. I just personally think, until the model is not dependant upon late fees to overcome the inbuilt default problems, it's running a bit like a ponzi scheme - ie dependant upon new generations of subscribers to cover the sins of the previous. If subscriber growth stops and late fees are pinched too much it may crash badly - but that could be a long way down the track from a significantly higher point than it is at present. Of course it doesn't have to crash at that point - increasing non consumer revenue streams or building strong risk assessment models to reduce default risk would address the risks I perceive for myself.

I understand this opinion will be irritating to some but it's just that, an opinion so chill out before you flame out.