Buy now, pay later heavyweight Afterpay has taken a step closer to offering full banking services, jumping on board Westpac’s digital banking platform to mine more data from its customers.
Afterpay’s shares surged past the $100 mark, as investors welcomed the move by the company to expand its portfolio of services. They closed the session 4.5 per cent stronger at a fresh record high of $101.94. Afterpay shares dipped as low as $8.90 in March and landed on the ASX in 2016 at $1.00 a share with a debut market capitalisation of just $125 million.
The company is now worth $29 billion and the partnership with Westpac announced on Tuesday will see it offer savings and transaction accounts to its 3 million Australian customers while avoiding getting a deposit licence and building these products from scratch.
The deal enables Afterpay to further scale its business by broadening its services and gaining access to crucial user data without needing a licence from the Australian Prudential Regulation Authority (APRA) to offer the accounts or needing to hold additional regulatory capital.
Afterpay co-founder and chief executive Anthony Eisen said using Westpac’s “banking-as-a-service” platform will not only help it offer its customers a different way to manage their finances but also get a deeper understanding of their spending habits.
“In deepening our relationship with our customers we will gather greater insights into how they prefer to mange their finances and better understand their saving goals,” he said in a statement.
The partnership also allows Afterpay to bypass some the regulatory risks associated with offering banking products. The company last week received a clean bill of health from the Australian financial crimes watchdog AUSTRAC over any breaches of anti-money laundering laws.
“In deepening our relationship with our customers we will gather greater insights into how they prefer to mange their finances and better understand their saving goals,” he said.
The deal is also a significant win for Westpac with Afterpay the first partner signed up to the bank’s digital banking platform, which was announced by former chief executive Brian Hartzer in 2019 and developed with its UK partner 10x Future Technologies.
It gives the bank a channel to pursue new deposits from younger customers and also improves the prospects of other non-bank institutions signing up to its digital platform.
Westpac chief executive Peter King said the bank and Afterpay would continue to work together.
“This collaboration reflects our strategy to meet the changing needs of customers and demonstrates our desire to partner with differentiated business models that provide alternative ways for consumers to spend and manage their finances,” he said.
Royal Bank of Canada analyst Tim Piper said while the banks’ multi billion dollar credit card revenue was being disrupted by the buy now, pay later sector Afterpay and Westpac’s partnership could be mutually beneficial.
“For Afterpay potential upside may come from a greater share of customer wallet, access into spend categories not currently available, all while critically retaining the customer relationship,” he said. “For Westpac it provides the opportunity to offer a range of new customer experiences to a large and engaged customer base of 3.3 million … and potentially a way to connect better with younger generations.”
Westpac is a shareholder in Afterpay’s rival Zip, which is not integrated into Westpac’s online banking app.
Speaking at a separate Australian Technology Investors Webcast on Tuesday Mr Eisen said scaling the business was “a very hard thing to do”.
“I think you hear it a lot, and it makes sense that it’s hard to get bigger, but it actually is really, really hard to get bigger,” he said. “When you think about all the things it takes for businesses just to continue to do well, to scale responsibly, if any one of those pieces fall out of the puzzle it causes a huge amount of stress and requires a whole lot of forward thinking.”
Afterpay’s focus now is further growth in the United States and Mr Eisen said Afterpay was significant as the first consumer platform to head to the United States rather than consumer platforms from the United States launching in Australia.
“It is very much a David and Goliath sort of equation as we first looked at it and we’ve continued with that spirit, that mentality, that entrepreneurialism that comes with that, because it is pretty energising,” he said.
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