Improvements to Afterpay

What is exciting about Afterpay is that it appears to always be evolving and more importantly it's listening to it's customers in an effort to continuously improve the service.

Some of the improvements of the back of customer requests (evidenced on social media) include:
-loyalty system
-having a small business and black business owner section to support certain cohorts
-having "favourites" in the app

The favourites is a recent addition (I think as of yesterday?) and I think this is a huge improvement because many customers have said they tend to shop at the same shops so without an ability to favorite your shops it becomes a bit of a hastle (and as we know the less friction the better the product).

So where to from here? If we look at our competitors there are certainly things that they are doing that Afterpay isn't that I think could add a lot of value.

-Sales: Klarna is really good at notifying, alerting its customers to any sales or sale items. Given the type of people that use BNPL tend to be budget conscious, I think Afterpay could improve on this.

- Sezzle Up: Sezzle up is a recent addition to it's service and it basically allows its consumers the option (a choice) to link to the credit bureau so when the service is used responsibly the credit score improves. This is very important in the US where your credit score means everything and can it itself lead to huge savings through, for example, better interest rates with lenders. Giving customers the ability, the option, the choice, to do this will appeal to a lot of people.

-Pay-anywhere: Klarna, ZipPay and QuadPay provide pay-anywhere services and customers like them a lot. You'll often find people on social media referring to Klarna or Quadpay when a store isn't offered by Afterpay. It's a great way to grow your customer numbers and likely contributed to large increases in customers for Klarna and Z1P. Having said that, I'm not sure I feel that positive about this product since any merchants that aren't partnered with these services don't actually provide much revenue to the bottom line (these merchants don't pay the 4-7% fees) while increasing the credit risk to the company. This product may make sense, but it would have to be looked at through a risk-adjusted performance measurement such as the RAROC (Risk-adjusted Return on Capital) or Economic Profit. Afterpay will likely have this information but we as investors don't. If Afterpay chooses not to offer this feature then they likely don't see the risk-adjusted benefit when taking into consideration it's market dominance and the fact that they can grow their customer numbers organically without offering these type of products. However, only time will tell.

-More type of stores: As we have seen in Australia, Afterpay has a certain strategy when growing it's business. First step is to be offered for health and beauty products. The main reason, as explained in the FY20 report is that these products come with less risk since they lose their reseller value. By comparison, someone could fraudulently purchase a PS5 with the full intention to never actually pay it back but instead resell it. Over time as Afterpay gathers more data, and becomes more comfortable with their risk profile in a new market they will naturally offer a wider and wider range. The wide range of stores offered in Australia will likely be replicated in the newer markets over time.

There are always things to improve on and it'll be interesting to see how Afterpay develops. I'm hoping to see something similar to Sezzle Up in the future and I'm excited to see what other stores will be offering Afterpay in 2021.

If you guys have any other suggestions for improvements please comment below. I must admit I don't keep track of BNPL outside my core holdings which is Z1P, SZL and APT so I'm sure there are other cool products, services that is being offered by other BNPL companies.