Afterpay is a service that lets customers buy now, pay later. Customers can purchase multiple items across stores, however, rather than paying the full cost in one lump sum, they can make four interest-free payments. In this article, learn more about how Afterpay makes money and its business model.
What is Afterpay?
Afterpay is a fast and secure online payment method. They offer a “buy now, pay later” solution to customers that allow them to make 4 equal payments every 2 weeks. In turn, they make money from merchants and late fees.
Afterpay is a popular Australian payment system that has been adopted by more than 1.5 million consumers and earned more than $1.5 billion across 12,000 brands in just the first two months of 2018.
You may not know it, but Afterpay is not available everywhere. If you are an Australian who has never had a line of credit, Afterpay might seem appealing. But before you sign up for it, keep in mind that the interest rates are high, and it doesn’t come with a long grace period.
|Founders:||Anthony Eisen, Nick Molnar, Nicholas Molnar|
|Users:||7.3 million (Feb 2020)|
|Headquarters: Melbourne, Australia||Melbourne, Australia|
How does Afterpay work?
Afterpay is a FinTech company that offers shoppers more purchasing options. Customers can make online payments in instalments and choose from a number of big brands such as ASOS, Pandora, The RealReal, Lululemon, and Forever 21.
With Afterpay, you can shop at your favorite stores and pay for your purchases over time. It’s easy to use and offers a great payment alternative for many shoppers.
Afterpay makes it really easy to buy items that you want. They offer interest-free installments for four equal, monthly payments that you can pay off before the due date. If you make your payments on time, Afterpay will not charge you extra fees.
However, if you don’t make your payments by the due date, they will prevent you from purchasing items with them. Late fees may not be waived for residents of some countries.
Afterpay is a company that enables people to order items online and try them out. If they don’t like the item, they can return it to the retailer. Currently, many countries in the world like the United States, Canada, and Australia use Afterpay. The company might expand to other countries in the future.
In a convenient and accessible way, Afterpay provides its platform on its website and mobile phones.
How does Afterpay make money?
Afterpay makes money mostly through fees. For example, merchants pay the company to process transactions, late payments incur additional fees, and cost-per-click advertising is another key revenue stream. Clearpay, the company’s subsidiary in the United Kingdom, also generates revenue.
The following section will only focus on how much money Afterpay makes. Its foreign subsidiaries operate on similar patterns.
Afterpay offers a debt-free way of buying. It doesn’t charge any interest or fees so customers can pay for their purchase over time. But the merchants themselves must pay the company for every transaction through its payment gateway.
Afterpay charges merchants 30 cents for every transaction, plus a variable fee of 4 to 6 percent on top of that. The fee is on par with other competing services like Sezzle or Quadpay.
The merchant’s fees are dependent on the value and volume of sales. The higher a merchant’s sales, the lower their fees.
This is a buy now, pay later option for your e-commerce platform. This makes it easy for your customers to purchase items now with the peace of mind of not having to worry about paying later.
The first perk of this service is that Afterpay takes on the risk of payment default if they are needed to go through the debt collection process. Another perk is that the instalment options lead to an increase in average order value which also leads to more money for your business.
The importance of excellent customer service extends to payment methods. For instance, when customers pay in instalments with Afterpay, they tend to return fewer products in general. This in turn leads to higher conversion rates and more customers.
The second source of income is from late payment fees. If a customer does not settle the amount due on the company’s invoice by the due date, Afterpay will first try and automatically deduct it from the customer’s debit or credit card.
The company charges a $10 late fee for unpaid invoices. The initial fee is applied when the invoice is due. For orders below $40, the fee per day can only reach $10. For orders over the $40 threshold, the fee per day can go up to $68.
Late payment fees as a percentage of a company’s revenue have been on the decline in recent years.
Cost per clicking Advertising
In August 2021, Afterpay announced in-app advertising technology that enables merchants to promote their own deals.
The ads are shown within the Afterpay app, which is available on both Android and iOS. Cost-per-click advertising is the preferred way for this company to generate revenue. There are two ways to promote the product: onboarding for new customers and repeat offers for returning shoppers.
With millions of downloads, advertising on Afterpay’s app is an easy way to boost sales for many brands that are seeking to increase their customer base.
What is the Business Model of Afterpay?
The Afterpay business model is rooted in its BNPL service. With this plan, Afterpay incentivizes shoppers to buy from its partner retailers by giving them the option of paying for their purchases over time.
It is very similar to a commission-based affiliate marketing business model. When you work with an affiliate, the business earns money from the affiliate’s commissions. The company has offices all over the world. They operate under the same affiliate marketing business model and are headquartered in Australia.
Afterpay is the best for customers who want to make small, monthly installments on their purchases, rather than paying in one large sum. Recently, there has been a lot of growth in the number of active Afterpay customers. According to the AFR, which is an Australian newspaper, 9.9 million people are using Afterpay in 2020.
According to the Australian Financial Review, millennials are Afterpay’s primary customer demographic (75% of all customers). The company has announced that it will shift its focus to Gen Z customers and expand its primary demographic.
Why do people use Afterpay?
Apart from providing BNPL (Buy Now, Pay Later) solution, Afterpay is known for its good customer service. They understand the needs of their customers because they don’t overlook anything. Unlike many payment portals, Afterpay upholds these values for their customers:
- Reward Points-
For when customers are in need of some financial support, Afterpay is there for them. It’s well-known for rewarding customers with good payment history by offering deferred payments or a loyalty program for on-time payments.
- No Credit Check-
Afterpay takes other measures to protect its customers, such as suspension of the defaulted user’s account. Unlike other services, Afterpay does not report late payments to credit agencies and does not affect the customer’s credit score.
- Interest-free Payments-
Customers can now purchase what they want, when they want it, and with the help of Afterpay, pay only the remaining balance in instalments. This service offers a unique value proposition to customers – one that Afterpay is confident will make a significant difference in a customer’s life.
How much is Afterpay worth? (Valuation and Revenue)
Afterpay has raised a total of $448.7 million and has some pretty impressive investors: Coatue, Tencent, and Mitsubishi. They raised another $25 million this year during their stock market debut.
The company’s valuation has risen significantly ever since it went public. In 2017, Afterpay was valued at US$1.6 billion. In 2019, as of the time of writing, this number has now reached US$29 billion.
Afterpay had a net loss of AU$159.4 million in the fiscal year 2021. Meanwhile, the company experienced revenue growth of 78 percent over the same timespan.
What is the history of Afterpay?
Afterpay is a financial technology company that originated in Australia with real-time payment systems. It’s present in Australia, the UK, Canada, New Zealand, and the US.
Nick Molnar, a young entrepreneur and jewelry business owner, caught the eye of Anthony Eisen in 2016. Molnar was doing late-night packaging for his eBay store but he also noticed that his neighbor was struggling to stay awake too. The two became friends and founded Tony’s Toes in 2015.
It all started when the founders of Afterpay began talking about the problems in a typical retail environment. They wanted to create a company that removed the risks, both for buyers and sellers. The concept of Afterpay was born. The business model is very simple: Afterpay pays the seller up front, and the customer pays 25% of the price, payable in three fortnightly instalments. The remaining 75% is paid back to the customer with no interest.
Over the years, Afterpay has grown to be an international company with over 48,000 merchants and integrations with multiple e-commerce and point of sale platforms. The company’s commitment to expanding its market and leaving a lasting mark on the industry is evident.
If you liked reading this article, make sure to check out our article on how Venmo makes money!