But Afterpay is betting it can continue to dominate the Millennial age cohort (loosely defined as those aged between 22 and 37), particularly those who do not have credit cards.
Mr Molnar who stepped down as chief executive last week in a management and board reshuffle to take the role of global chief revenue officer, said Afterpay’s popularity with Millennials – who will have the highest spending power in the world by 2020 – remains its competitive advantage.
And the company will be able to capitalise on that advantage beyond payments, for example by selling data to brands and marketers. “Retailers are looking at us as a marketing channel, they are not just looking at us as a payment method”, he added.
‘Moat’ in a business context refers to a term coined by investment legend Warren Buffet and refers to a company’s ability to charge a premium even when rivals offer similar products. The relative ease of replicating Afterpay’s service is one of many issues that has troubled critics of the highly polarising stock.
Afterpay currently charges merchants a 4 per cent fee on each transaction.
According to Mr Molnar, the company is growing confident that it can match its Australian success in the US market – in terms of its ability to become a dominant referrer of retail sales traffic in that market.
“It’s starting to unfold in a similar way to Australia,” said Mr Molnar of the local market where it now accounts for 10 per cent of online sales and has become the biggest referrer to its retail customers’ web sites outside of Google.
“We can just touch and feel the opportunity,” he said.
Afterpay has had no trouble convincing investors of its promise. Its shares rose 168 per cent in the June half year despite the most tumultuous month in its short life.
But recently it has run into trouble with regulators.
Afterpay first attracted the ASX’s attention on June 5 when it was asked to explain a share spike from a US update reporting its strong performance in that market.
It was soon followed by a $317 million capital raising and $103 million share sale by the co-founders, Mr Eisen, Mr Molnar and Mr Hancock.
AUSTRAC ordered the company to undergo an external audit the following day. There is no suggestion the founders were aware of the AUSTRAC order.
This was followed by another share dive late last month in reaction to the news that Visa will be developing a platform that will allow its bank customers to offer instalment payments for the first time. It triggered Afterpay’s third ASX query in as many weeks.
As the $7 billion stock settles again, bulls will continue to see any sell-off as a buying opportunity. But not all investors see it that way.
“If the audit determines that Afterpay is required to conduct ID checks of end customers, then there is a reasonable chance that the process prior to July 2018 did not meet requirements,” said Afterpay investor Clime Asset Management in a recent report.
But Clime said the circumstances of the issue “all point towards a relatively low seriousness of offending,” said the fund manager.
Colin Kruger is a business reporter. He joined the Sydney Morning Herald in 1999 as its technology editor. Other roles have included the Herald’s deputy business editor and online business editor.