The Afterpay Ltd (ASX: APT) share price has declined after being on the receiving end of a negative broker note from UBS.
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What happened to the Afterpay share price?
Afterpay shares are down 1% today – and it fell below $110 earlier – after UBS issued a scathing note about the buy now, pay later business.
The trigger for the note was the announcement yesterday by Commonwealth Bank of Australia (ASX: CBA) that it plans to enter the buy now pay later sector.
One of the main things that UBS pointed out was the fact that merchants can't pass on the costs of the buy now pay later fees – which are between 3% to 7%. However, merchants can pass on the costs of CBA's merchant fee. Consumers are seemingly not aware that businesses have to pay Afterpay this sizeable fee.
The broker thinks that eventually, it will lead to the regulations being changed regarding surcharges. This wouldn't be good news for Afterpay, according to UBS.
CBA's new buy now, pay later product
Yesterday, CBA announced that it's going to roll out a buy now, pay later product for eligible customers from mid-2021. It will link to a CBA bank account, with no ongoing fees for customers and no additional cost to businesses. Those businesses only have to pay the normal merchant fees.
Customers will have a limit of $1,000 and it can be used anywhere that Mastercard is accepted.
The Afterpay share price rose yesterday in spite of this announcement.
CBA said:
The development of CommBank's new BNPL offering follows recent research showing 76 per cent of Australians who currently use BNPL are interested in using a BNPL service offered by their main bank.
The research showed BNPL users feel a bank-provided BNPL service would be more secure and reliable.
CommBank's BNPL offering is in line with shifting customer preferences and expectations around how they like to access short term credit in ways that are simple, low cost and have no surprises.
Customers of CBA will need to pass both internal and external credit assessments to be eligible. An executive of CBA noted that this is the first BNPL offering by a major bank – but does that mean that Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) will eventually launch BNPL as well?
UBS' share price target for Afterpay
The broker has the lowest price target for Afterpay compared to all the others. Over the next 12 months, UBS thinks the Afterpay share price could fall to just $36.
This means that UBS believes that Afterpay shares could fall by around two thirds.
