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Afterpay and Zip Co To Face Competition From Commonwealth Bank

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

Afterpay Touch Group Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P), the top two high-flying buy now pay later stocks, are set to see increased competition following CBA’s foray into the industry. The Aussie banking giant announced a US$100m investment into Klarna, a Swiss-based rival with 60m customers globally. Klarna is not publicly listed and has a post-money VC valuation of $5.5bn, making CBA a small investor on the register. With CBA owning 2% of the company, one can expect the bank to be wary of supporting Klarna in any initiative that threatens to cannibalise a portion of their existing revenue.

 

Buy-Now-Pay-Later

 

Klarna offers the opportunity to repay a purchase in four equal instalments, a model used successfully by Afterpay to turbocharge customer growth. The company is the most valuable fin-tech start-up in the EU and is pushing for growth in the US and Australia, markets that Afterpay is trying to dominate. The firm’s recent equity raise will give them greater ammunition to compete with Afterpay, setting the two companies on a race to dominate the rapidly growing US buy now pay later market. While some investors claim that Afterpay’s AI-based credit models and data build-up create a network effect that allows the firm to reduce pricing over the long term, other firms may be able to do the same while the market is in its infancy.

Markets have, for the most part, shrugged off the CBA association, given the deal is more reflective of an intention to gain investment exposure to the industry as opposed to a decision to enter it. This comes in contrast with Visa’s decision to enter the buy now pay later market, that saw Afterpay’s share price sell-off 10%. Zip Money and Afterpay are both up over 2% in morning trade today, a strong sign that investors do not regard this development as a major threat to the business.

 


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978) (“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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