Afterpay has the potential to double its revenue in Australia through its Afterpay Money banking products when it launches the new app later this year, says Morgan Stanley.
In a new report, the broker said while Afterpay Money will initially focus on transaction and savings accounts, the Buy now Pay later provider has not ruled out offering other financial products such as mortgage referrals and share and crypto trading. All these products are inherently capital light, except for SME lending.
In addition to boosting revenue growth, Morgan Stanley said the new app will grow the Buy now Pay later provider’s eco-system by increasing engagement, opening more data, and cutting processing costs, presenting further growth options for Afterpay.
Just as importantly, the new app will enhance Afterpay's shopping eco-system which is key to driving other revenue such as cashback commissions, the broker noted.
“We think the largest and most exciting potential revenue driver is cashback commissions, as it is a natural extension of Afterpay’s two-sided shopping network, benefiting both merchants from higher sales and high ROI marketing, and retail customers by offering them savings,” the report added.
This is when a provider rewards customers by paying them a percentage of the commission paid to a retailer when they purchase goods and services with their app.
“It complements Afterpay’s existing BNPL business by offering discounts to those who want to pay upfront and outright, though it could be possible to combine it with BNPl.”
Morgan Stanley said Afterpay Money is built on Westpac's banking-as-a-service platform, so it can grow globally while helping the BNPL provider to remain capital light.
The broker has a share price target of $145.00 price target for the $16.2 billion-in-sales BNPL provider that has successfully grown its franchise in Australia and offshore.
Yet risks remain.
Investors have also been concerned about the increasing competition in the booming BNPL from heavyweights like PayPal in the US and the Commonwealth Bank which is launching a BNPL product for its customers this year.
“To date, Afterpay has navigated the regulatory environment well and responded rapidly to regulatory demands,” according to the report.
“Investors’ largest concern has been the no-surcharging rules in Australia, where merchants are not allowed to pass on the higher cost of BNPL payments to their customers. The RBA recently concluded that there's no clear case for BNPL providers to remove no-surcharge rules at present but stated that a public case could emerge in the future if BNPL continues to grow strongly.”