By Jonathan Barrett and Paulina Duran
SYDNEY (Reuters) - Australia's Afterpay Touch Group Ltd, an early adopter of buy-now-pay-later consumer lending, has come under heavy selling pressure for consecutive trading days after credit card giant Visa Inc unveiled plans to enter the market.
Visa's plans to allow customers to pay by instalments marks a significant threat to Afterpay and its cohort of like-minded companies pioneering interest-free payments systems.
Afterpay stock was down as much as 10% in early trading on Monday after a similar fall late on Friday, wiping a combined A$1.38 billion ($967.4 million) off the firm's market capitalisation since Friday morning.
Afterpay shares had started to recover in volatile late-afternoon trading.
Threats from large players like Visa with capital to defend their market positions were making some investors think twice about Afterpay, said Sean Sequeira, chief investment officer at fund manager Australian Eagle.
"It is yet to be seen but someone like Visa is seeing the growth in this sector and is going to protect their credit card business, and can implement a very similar product very easily," said Sequeira, who does not own Afterpay stock.
Richard Coleman, an analyst at stockbroker Morgans, which rates the stock an "add", said Afterpay shares were now pricing in the announcement from Visa.
Afterpay listed at A$1 in 2016 and hit a high of A$28.76 last month.
Buy-now-pay-later players like Afterpay let shoppers purchase products without paying upfront, and without the regulatory hurdle of applying for a credit card or loan. They typically make money by receiving fees from vendors.
The majority of Afterpay's revenue - about 80 percent - comes from vendor fees, with the rest mainly derived from late payment fees from customers, according to its financial accounts.
While the firm almost doubled revenue in the first half of the 2019 fiscal year, it posted a A$22 million ($15.4 million) loss in the period. It attributed the result to its high investment spend to pursue growth in the United States and Britain. It is due to release its full-year results next month.
In just a few years since the payment system was introduced in Australia, already more than 10% of Australians use Afterpay and its Australian competitor Zip Co, according to broker UBS.
Visa said last week it was piloting its own instalment payment programme, which would be available in January 2020.
Afterpay said on Monday that media reporting of Visa's plans may have influenced trading.
The Melbourne-based company suffered a similar price fall last month, after being ordered by Australia's financial crime watchdog to hire an external auditor to look into its anti-money-laundering protocols. The shares promptly rebounded.
"We see this sell-off as a buying opportunity," Bell Potter's Institutional Sales and Trading Desk told clients on Monday afternoon in a note. "The key concern for us remains the outcome of the (regulator's) audit."
The broker highlighted the vast majority of Afterpay's customers do not have a credit card account, and Visa would likely experience a long ramp-up period where every issuer of its cards would need to sign up to the instalment payment option.
($1 = 1.4265 Australian dollars)
(Reporting by Jonathan Barrett and Paulina Duran in SYDNEY; Editing by Stephen Coates and Rashmi Aich)