Why consumers will benefit from Buy Now Pay Later competition

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The war between the big four banks and the buy now pay later (BNPL) space heated up this week as Afterpay released its new money app, which is targeting Gen Z and millennials, and is another step forward in Afterpay becoming more like a bank.

As I have stated in previous reports, the big four banks are good at sitting back and watching others take the risk to develop a market before entering, and this is very much what they have done in the BNPL space. Two weeks ago, Westpac joined CBA in offering a zero-interest credit card aimed squarely at the same marketplace as Afterpay. Given this, I suspect it won't be too long before ANZ and NAB join the party.

The big point of difference between the banks and those in the BNPL space is in the area of lending, and I believe the banks have a distinct advantage. It is one thing to provide a service where individuals can buy an item and pay for it over a month but Gen Z and millennials also need to be able to borrow for housing and other loans. Another advantage the banks have is that they are already regulated with well-established compliance systems. However, until recently compliance and regulation has not been a concern in the BNPL space. But ASIC has made it clear that they are looking at regulating this market, which is likely to add red tape for BNPL organisations, resulting in reduced profit margins.

afterpay shares

That said, the banks can be old, stale and slow to move as they are all big elephants with old systems, while the BNPL space is the new frontier. So, the next few years will be interesting to watch as they release new products in an attempt to gain more market share.

The obvious winner in all of this will be the consumer, as more competition means lower prices, better services and better products.  Right now, while some of the stock prices for the BNPL providers are not doing very well, I would still watch this space given that in 2022 it is likely we will see some nice movement especially with the larger providers. So while I commend Afterpay for releasing this new product, now is not the time to enter this stock.

What are the best and worst performing sectors this week?

The best performing sectors include Materials up over 2 per cent followed by Industrials and Utilities, which are both down just under 1 per cent. The worst performing sectors include Information Technology and Healthcare, as they are both down over 3 per cent followed by Energy down over 2 per cent.

The best performers in the S&P/ASX top 100 stocks include Evolution Mining up over 11 per cent followed by Northern Star Resources up over 10 per cent and Fortescue Resources up over 8 per cent. The worst performing stocks include Xero down over 10 per cent while Crown Resorts is down over 7 per cent and REA Group down over 6 per cent.

What's next for the Australian share market?

The Australian stock market has so far failed to trade higher than last week and on Thursday it was down just over 1 percent erasing almost all of the gains from the prior week. That said, it did rally late in the day, which resulted in it closing down just under 1 per cent for the week so far.

I mentioned last week that over the past two years we have experienced many surprises where the market did not respond as we would normally expect. After the bullishness of the prior week, you could reasonably expect to see the market continue to rise this week, however, on each of the four days it closed lower.

While the market has not traded higher than the previous week, the good news is that it has also not traded lower, so where it closes today will be important. A high close will indicate the weakness in the market this week is just a stall in the new uptrend, while a low close will indicate that we may experience one or two down weeks before the uptrend recommences.

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Dale Gillham is chief analyst for Wealth Within (AFSL 226347). He has an Advanced Diploma and Diploma of Share Trading and Investment and more than 25 years' experience in the financial services industry.