Five years ago a small business in Canada, Shopify (NYSE: SHOP), has gone public in the US markets. It’s incredible action and a madman’s favorite ever since, with a value of 3,700%. History could repeat itself with an Australian fintech superstar, After payment (OTC: AFTPF). It went public on the Australian stock exchanges in 2017, and the stock has climbed nearly 3,000% in three years.

Afterpay offers consumers a new way to shop without purchasing a credit card. Say you want Jimmy Choo boots. A pair will cost you around $ 1,000. But maybe you don’t want or aren’t able to pay the retail price up front. This company allows you to pay after your purchase. With the service, you only pay $ 250 at checkout. Afterpay pays the rest (minus the cost to the retailer). Then you owe Afterpay $ 750, which you pay back in three installments over the next six weeks.

For consumers, it’s the equivalent of an interest-free loan. As Cosmopolitan put it in a recent article, “Your Credit Card May Be Replaced.” It is not surprising that Visa (NYSE: V) wants to enter this market. And now Shopify wants to compete inside too. Does that mean the party is over for Afterpay?

Image source: Getty Images.

First, let’s run some numbers

Afterpay just reported that buyers paid after A $ 11 billion worth of products in its most recent fiscal year. This is an increase from A $ 5.2 billion in fiscal 2019. The company has nearly 10 million active customers worldwide and 55,000 retailers in its network.

In the United States, growth has been even more spectacular. Afterpay now has more buyers there (5 million) than in Australia (3 million and over). In the United States, the underlying sales on the Afterpay platform increased by 330% compared to the previous year.

Of course, this fantastic growth spawned many imitators, including a company called Affirm, a ‘buy now, pay later’ start-up led by Max Levchin, the co-founder of Pay Pal (NASDAQ: PYPL). Affirm recently signed a collaboration agreement with Shopify. Could this partnership harm Afterpay? Or does it really validate the economic model?

Afterpay vs Affirm

At first glance, Affirm’s deal with Shopify makes the outfit look like a pure imitator of the Afterpay business model. Excerpt from the press release: “At checkout, approved Shop Pay customers will be able to divide the total amount of their purchase into four equal payments, every two weeks, without interest. ” As Motley Fool Australia Put it on, “This is the same as the Afterpay model.”

On closer inspection, however, there is an important distinction between the two companies. Afterpay does not perform credit checks on customers and is promoted as an alternative to credit cards. Affirm always performs credit checks. And if you use Affirm at a retailer outside of the Shopify network, your loan is no longer interest-free, and you could pay 15% interest. Right now, Affirm is more like a virtual credit card company that turns into an Afterpay clone in order to access Shopify’s network.

How does Afterpay avoid the risk of default, if it does not perform any credit checks? When a buyer selects the Afterpay option at checkout, the company’s software performs an internal check for fraud and refund capability. Every Afterpay buyer has account limits that start low and increase when your refund history is positive. Afterpay only approves one order at a time, and if a refund is not issued on time, customers cannot use Afterpay until the refund is issued (with late fee payment). Therefore, Afterpay’s net transaction loss due to non-payment is only 0.6%.

Afterpay switches to the real world

At present, all of Afterpay’s business in the United States is derived from Internet commerce. This is about to change as the company now collaborates with Apple (NASDAQ: AAPL) to allow shoppers to pay for in-store purchases, using Apple Pay. It is also working with Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) to provide post-payment functionality with Google Pay. This shift to mobile payment options gives Afterpay a huge advantage over its online competitors.

In Australia, 40,000 stores use Afterpay to facilitate purchases. About a quarter of the company’s sales come from brick and mortar retail. It looks like Afterpay’s incredible growth in the US is expected to continue as the fintech The company is expanding its non-credit offerings from Internet commerce to real-world shopping.

It is still very early in the company’s journey. But it’s possible that Afterpay actually wins this credit card war. And so far investors have won at the same time anyway.

10 actions we prefer over Afterpay Touch Group Ltd
When investment geniuses David and Tom Gardner have stock advice, it can pay off to listen. After all, the newsletter they’ve been running for over a decade, Motley Fool Equity Advisor, has tripled the market. *

David and Tom have just revealed what they believe to be the ten best stocks for investors to buy now … and Afterpay Touch Group Ltd was not one of them! That’s right – they think these 10 stocks are even better buys.

See the 10 actions

* The portfolio advisor returns to August 1, 2020

Suzanne Frey, executive at Alphabet, is a member of the board of directors of The Motley Fool. Taylor carmichael owns shares of Afterpay Touch Group Ltd, Apple, PayPal Holdings, Shopify and Visa. The Motley Fool owns shares and recommends Alphabet (A shares), Alphabet (C shares), Apple, PayPal Holdings, Shopify and Visa and recommends the following options: long January 2022 $ 75 calls on PayPal Holdings. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.