Let me say upfront — for the absolute avoidance of doubt — that I don't think Afterpay Touch Group Ltd (ASX: APT) is doing anything inappropriate, in regards to its retail partners.
But I wonder, these days, whether Afterpay is really delivering value for the retailers who are paying — potentially — well over the odds for the service.
But let's take a step back.
First, I am full of admiration for the Afterpay team, and what they've achieved. To be able to get a huge swathe of Australian retail (and some nascent progress into the US) against the likes of Visa, Mastercard and American Express is truly impressive.
More so when you remember that our own Bankcard was closed down, because it couldn't effectively compete.
And the Afterpay sales pitch, at the beginning, was devastatingly compelling. Using early successes, the Buy Now, Pay Later innovator was able to demonstrate a sales uplift that was well and truly worth the fees a retailer would pay Afterpay for the privilege.
But that was then.
Now? Well, I haven't seen any internal data from either Afterpay or its retail partners. But let me paint you a hypothetical:
In the early days, when a retailer could..
1. Entice a customer away from a competitor;
2. Draw in new customers who didn't have any other credit options; and/or
3. Induce a customer to spend more, because, hey, they could pay later
… the retailer using Afterpay could make a (relative) motza
Now, many, perhaps most, retailers take Afterpay.
And far from delivering on 1, 2 or 3, above, many customers who now use Afterpay are existing customers, who aren't going to spend anything extra, and who simply think:
'Stuff it. Why pay now, when the shop will afford me the privilege of paying later?"
That customer isn't new. He's not buying anything more. But the shopkeeper is paying more than she'd have to if the customer paid in cash or by credit card.
The customer wins.
Afterpay wins.
And the retailer? Isn't it just possible they've been sold a dud, and are paying more (and making less profit) for the privilege?
Why wouldn't I take the $100 I was already going to spend at, say, Officeworks, Just Jeans, Big W or Fantastic Furniture, and pay in four $25 chunks, rather than upfront? On the face of it, I'd be mad not to — the money is better in my pocket for a few weeks, rather than someone else's.
And when I do… the poor old retailer foots the bill, for no extra return.
Maybe it doesn't matter anymore. I mean, which retailer is going to drop Afterpay once they start offering it?
And the benefit? I don't think it accrues to the retailer. At least not once Afterpay hits critical mass, and offering it is no longer a differentiator.
So, bravo Afterpay. It's used the forces of competition and consumer demand to build its business in a totally legitimate and above-board way. And it's built such a strong ecosystem, that many retailers are still keen to use it, lest they lose customers.
But, at a time when retail is already doing it tough, Afterpay might just be the great hope that, far from helping, ends up hurting the bottom line.
Who'd be a retailer, even in a buy now, pay later world?
Fool on!
