How this new red tape could send the Afterpay share price tumbling

Shareholders in Afterpay and other ASX buy now, pay later (BNPL) shares could get stung by more red tape.
The post How this new red tape could send the Afterpay share price tumbling appeared first on Motley Fool Australia. –

Tangled red tape in mid air with small figures falling off it

The Afterpay Ltd (ASX: APT) share price is sliding again today, down 4.5% in early afternoon trading. At the current $70.51 per share, that puts Afterpay’s share price down 24% since hitting an all time high of $92.48 per share on 25 August.

Unless you’ve bought shares in the last 3 weeks though, you should still be sitting on some healthy gains.

Despite crashing more than 77% during the COVID-19 market rout in February and March, the Afterpay share price is up 132% year-to-date. That’s thanks to a tremendous 700% surge since 23 March.

Afterpay is part of the S&P/ASX 200 Index (ASX: XJO). In comparison, the ASX 200 is still down 12% year-to-date.

What does Afterpay do?

Afterpay is an Australian incorporated technology company and a leader in the buy now, pay later (BNPL) market. Afterpay’s payment platform allows people to buy and receive goods and spread the cost of their purchase out over equal payments, without any interest fees.

The company was founded in 2015. Afterpay shares first began trading on the ASX in June 2017. These days the company operates in Australia, the United States and the United Kingdom, with current expansion plans into the wider European market.

What kind of new regulations could impact the Afterpay share price?

Afterpay’s share price – and indeed the share price of most every BNPL player on the ASX – has been pulling back amid fears that weak barriers to entry are seeing major new competitors enter the same space.

After posting eye-popping gains, Afterpay’s share price was also due for a pullback as investors took some profits off the table.

Adding an additional unwanted headwind for shareholders, the Reserve Bank of Australia (RBA) and the Australian Securities and Investments Commission (ASIC) could be ready to move forward on new regulations in the BNPL business. Though both agencies won’t have their reports completed until next year.

The RBA is looking into Afterpay’s prohibitions on merchants adding a surcharge to BNPL users, something merchants can tack onto credit card purchases. If merchants are enabled to charge customers more when using a service like Afterpay, it would almost certainly see reduced use and result in lower share prices.

There’s also growing concern that some customers are having trouble meeting their scheduled interest-free repayments.

The Australian Competition Tribunal is also preparing to reveal its decision on whether Afterpay and its BNPL competitors will need to conduct income and expense checks before offering their services to new customers.

Should the Tribunal find these checks are in order, Afterpay’s share price could fall further from here.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post How this new red tape could send the Afterpay share price tumbling appeared first on Motley Fool Australia.

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