Afterpay inks deal with iconic brands Levi's and Ray-Ban, deepening its US footprint and sending its stock price surging

Joe Raedle / Staff/ Getty Images
  • Australian ‘buy now, pay later’ service Afterpay has announced new distribution partnerships with US retailers including Levi’s, Ray-Ban, O’Neill and Tarte Cosmetics.
  • Shares in Afterpay on the Australian Securities Exchange surged 7.079% on Wednesday to $23.90 — the best performer of the day’s trade.
  • The US expansion follows concerns raised about Afterpay’s business model by the Australian corporate regulator and a parliamentary inquiry.

Things seem to be going well for Afterpay in the US.

The Aussie-born ‘buy now, pay later’ pioneer said in November 2018 that 300,000 American consumers had used its services in the first six months of operation in the country.

In a statement issued in the US on Wednesday, Afterpay announced that number has now reached 1.5 million across 3,300 retailers, including some of the world’s most iconic fashion brands.

The ASX-listed platform will now be available in retailers including denim designer Levi’s, sunglasses brand Ray-Ban, surfwear company O’Neill and millennial-focused cosmetics brand Tarte, it announced.

Despite Afterpay not lodging the announcement with the ASX, Australian investors still reacted favourably, with shares surging 8.7% before closing up 7.079% at $23.90, the best performer on the exchange on Wednesday.

But not everyone in Australia is enamoured with the ‘buy now, pay later’ innovator or its business model.

A parliamentary inquiry, which commenced in October 2018, was tasked with looking into the providers of “credit and financial services targeted at Australians at risk of financial hardship” after the corporate regulator ASIC singled out Afterpay as one of a number of ‘buy now, pay later’ services under its microscope.

When grilled by politicians during the inquiry, Afterpay argued it was not a credit provider at all but a “budgeting tool” that levies late fees rather than charging interest or account-keeping fees. Consumer advocacy group Choice told the inquiry that “a quarter of Afterpay’s income” comes from these late fees.

The language has continued into its US expansion.

In Wednesday’s US partnerships announcement, Afterpay CEO and co-founder Nick Molnar — who was invited by Harvard Business School to give lectures to MBA students in April, according to The Australian — again spoke of the platform’s utliity as a helpful budgeting tool.

“As more millennials and Gen Zers shop for brands ranging from American icons like Levi’s, Ray-Ban, Jeffree Star Cosmetics and O’Neill to younger, category-shaking brands like Tarte Cosmetics, they are showing how important it is to them to be able to manage their budgets responsibly and never be caught off guard by surprise interest payments or fees,” Molnar said.

Some policymakers in Australia remain unconvinced.

Although the parliamentary inquiry ultimately stopped short of introducing tough new rules for Afterpay and its rivals, it also expressed some cynicism about the “budgeting tool” line, especially as it relates to more vulnerable consumers.

“It seems likely that, as providers have suggested, many people use their products as a budgeting tool,” the final report concluded.

“It is less likely, however, that the 23 per cent of people paying their buy-now-pay-later account with a credit card are using the service for budgeting.

“It is almost certainly not the case that individuals with multiple payday loans are using buy-now-pay-later products to budget.”

It seems like buying Ray-Bans and Levi’s when you can’t afford them is now called budgeting.

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