The Afterpay Touch Group Ltd (ASX: APT) share price has charged 3.78% this morning as the threat of regulation appears to be waning. At the time of writing, Afterpay shares were trading at $16.19 per share following this week's grilling of "buy now, pay later" chief executives from both Afterpay and rival Zip Co Ltd (ASX: Z1P).
Now boasting a market cap of $3.65 billion, the biggest risk to Afterpay's growth trajectory has always been the looming threat of regulation by the likes of ASIC if the company was deemed to be a credit provider. This latest Senate inquiry has been scrutinising the business model of Afterpay and its fellow competitors, and looking at options for further regulation in the "buy now, pay later" industry.
Afterpay strenuously denies that it is a credit provider, as its business model does not actually extend lines of credit to its customers. Instead, customers pay off their purchase in four equal instalments over a set period of time and are subject to pre-determined "late fees" rather than interest expenses seen on traditional credit products such as credit cards.
Afterpay saw stratospheric growth in 2018 as its share price exploded on the back of consistent outperformance on its sales numbers and a successful expansion into the USA. The share price closed the year out at $12.40, a 1-year increase of a tidy 94.36% for investors in one of the big success stories of 2018.
I think the tone from ASIC in the latest round of Senate hearings indicates the regulator may push for greater supervisory powers without restricting the current business model of Afterpay. This thesis is also supported by the corporate regulator's report just months ago that found that powers to intervene in the sector should be satisfactory rather than regulating Afterpay under the much more restrictive Consumer Credit Protection Act 2009.
Markets appear to be on the same wavelength in this regard, with this morning's early gains indicating that the upwards trajectory for Afterpay could be set to continue ahead of its mid-year results release in February.
