The increase in conversion rates and basket sizes = increased revenue.
Why would a merchant offer Afterpay AND Zip pay (or insert other BNPL company)?
The biggest difference to a merchant is essentially the reach. How many people can you reach through each BNPL provider? 6 million through APT and 2 million through Zip pay? The obvious choice would be for the merchant to offer both to get access to 8 million (this is a simplified example and ignores the fact that some customers would be using both). Whether the merchant is charged 5% from Afterpay or 4.5% through Zippay shouldn't really be relevant. Any pricing differences come from Afterpay's greater reach.
However, there is a limit to the amount of choices a merchant will bother offering, which is why Afterpay in particular is in such a strong position. Any merchant would be silly not to want to offer the market leader, which puts Afterpay in a strong competitive pricing position.
By definition this perfectly contradicts the idea of 'perfect competition'. It doesn't matter how you spin it, doesn't matter how much higher the market cap for APT is compared to competitor. APT is in an absolute dominant position and is spending big on ensuring it continues to be a dominant force in other major markets.
In my opinion, once the dominant players in each market are established consumers are unlikely to have a reason to switch. In Australia Afterpay is king but there is also space for a market incumbent like Zippay. I wouldn't bother with any of the others, except maybe Flexi for higher priced purchases but that's not direct competition with Afterpay.
In the US it's looking increasingly likely the oligopoly will consist of Afterpay, Klarna and Affirm, although the latter isn't a pure competitor either. In the UK Klarna is the dominant force, with Afterpay the incumbent, but again I'm comfortable with this. In the long run we should see Afterpay and Klarna side by side.
I should note that the only time when I would get worried about competition is if Afterpay's reviews start to slip compared to competitors. So far Afterpay's reviews and social media comments are overwhelmingly positive, especially when compared to what I would consider its next best global competitor, Klarna.
APT Price at posting:
$18.80 Sentiment: Hold Disclosure: Held
