Afterpay flags launch of local banking service, eyes 11 million customers globally

Afterpay said it will launch its banking service to more than 3.2 million Australian customers by the June quarter next year but hinted that the Westpac cloud-based banking service it is using could potentially be rolled out globally to a customer base which now exceeds 11 million.

The $27 billion buy now, pay later provider released the fresh details about its entry into the world of banking as part of a September quarter update to the market.

Afterpay is planning to target its 11 million buy now pay later customers with banking services.
Afterpay is planning to target its 11 million buy now pay later customers with banking services. Credit:Louie Douvis

The company confirmed that it will be offering Afterpay-branded savings and transaction accounts, linked to existing customers accounts, with a “minimum viable product launch” targeted for the June quarter next year.

Afterpay said the service will offer users an alternative to traditional banking products and that it “is globally scalable as it uses cloud-native technology”.

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This means Afterpay could potentially roll out the Westpac service to all of its global customers. The company did not comment on whether it would actually use the Australian bank for a global rollout, but reiterated that Australia is the blueprint for its international expansion plans.

Afterpay revealed it had doubled its customer base over the year to more than 11.2 million active users driven by its aggressive push into the US market, but the company pointed to its local performance as the best demonstration of its true value.

Afterpay said underlying sales more than doubled for the September quarter to $4.1 billion, with momentum from the June quarter continuing into the current financial year, putting it on track to hit $16.4 billion in merchant turnover for the 2020-2021 financial year.

Afterpay reported that merchant margins were in line with the previous financial year, which was around 3.9 per cent, and said transaction losses remained low by historical standards despite the impact of the pandemic on its markets across the globe.

“The trend towards lower gross losses (unaudited) continued throughout the first quarter, with customer default payments remaining below historical rates in all
regions,” the company said.

This means strong net transaction margins have been maintained for the quarter.

RBC Capital Markets said the Australian, New Zealand and UK customer numbers were ahead of its forecasts, but described the US numbers, which jumped 175 per cent to 6.5 million, as below expectations.

A recent Morgan Stanley report, which upgraded its price target on Afterpay from $106 to $115, said it had been expecting Afterpay to report 11.3 million active users and $4 billion in merchant sales for the quarter, which was broadly in line with consensus.

“We have increased our FY21 user forecasts by 8 per cent given strong app downloads in the US,” the report said.

Wilsons said it remains comfortable with its forecasts for US customers to hit 8.1 million by December 31 this year.

Afterpay said its performance in Australia and New Zealand continues to provide the blueprint for its expected performance globally, with customers using the service more frequently with time and as more merchants are added.

The company said the top 10 per cent of customers in Australia and New Zealand on average transact with the service 54 times a year, across 26 different merchants in 11 different market verticals.

“Experience to date in newer international markets is showing similar trends at similar
points in the ANZ life cycle.”

The company said the acquisition of Pagantis is on track for completion by the end of 2020, which will help drive its expansion in continental Europe. And it has now established a base in Singapore to drive the development of the south-east Asia market.

Afterpay shares surged more than 7 per cent to $102.97 on Wednesday.

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Source: Thanks smh.com