Afterpay is an Australia-based FinTech company popular for its core service, which is “buy now pay later”. Founded in 2015, currently, this company is operating in Australia, Canada, UK, the US and New Zealand.
Afterpay has tie-ups with almost 49,000 online retailers and more than an 8.4million users use Afterpay for completing transactions. Mac Cosmetics, Bed Bath and Beyond, Forever 21, Finish Line are examples of the retailers who accept Afterpay.
Currently, the company’s revenue is 519.2 million AUD.
So, how exactly does Afterpay make money? It makes money by charging the merchants a fixed or variable fee, as well as another income source, is the late fee charges from the users. Other income sources are the foreign versions or subsidiaries like Clearpay (UK subsidiary).
Here, you can find more details about the business model of Afterpay to get more knowledge.
How does Afterpay work?
Using Afterpay, an online shopper can purchase items and pay for the same in four installments. The first installment needs to be paid up-front; users need to pay the rest of the amount within six weeks.
Accessing Afterpay is easy; users can download the Android or iOS version app on their phone or they can simply visit the website.
As an online shopper, you need to select “Afterpay” as your payment mode at the time of the checkout. Now, you can pay for the items in four installments.
There will be no charges or interest applicable when you pay all your installments on time. Else, late fee charges will be deducted from your account. Moreover, being late for making payment also blocks you from purchasing another item via Afterpay.
Customers can test the products before paying any amount using Afterpay. If they do not like those products, they can return them too.
Brief History of Afterpay
Nick Molnar and Anthony Eisen– the founders of Afterpay, were always interested in innovative and financial business. Nick was already running a jewelry business online. The online jewelry store iceonline.com is still running.
However, there were no similar startups in Australia; this made Afterpay gain huge popularity within a short span. The company took help from a payment technology company, Touchcorp limited, to process all the online transactions. Touchcorp even got 33% stakes in Afterpay.
Initially, Afterpay was focusing on getting more merchants that would sign up with them. The first merchant was Nick’s own online jewelry website.
They were successful in making a merchant base in a very short time and the company went public in 2016.
In 2017, the company merged with its largest stakeholder, Touchcorp and became a strong name (Afterpay Touchcrop) in the Australian market.
In just two years after launching, the company started expanding its business in New Zealand and even launched its iOS application.
Kylie Jenner used to tweet about this company and its service, which made it even more popular.
In 2018, Afterpay acquired Clearpay and started operating in London. Since 2019 the company is known as Afterpay Limited.
The customer base of Afterpay is also strong. Millennials and mostly women are fond of Afterpay. There are over 1,24,000 members in a Facebook group called “ We Love Afterpay”.
Even with such popularity, Afterpay also faced criticism and got into controversies. In 2018, Ownership Matters, a governance firm, reported that minors are masking their age and buying alcohol using Afterpay.
In 2019, the company failed to do proper identity checkups and get into controversies of breaching laws of anti-money laundering. This made the company invest a lot of money in law compliance.
Critics have claimed that using Afterpay; people tend to increase their debts without focusing on getting essential items. According to Probono Australia, young people are getting into vicious cycles of debts by using Afterpay.
Despite all these controversies, Afterpay, as a brand, is still rising. Even when many businesses are suffering due to the coronavirus pandemic, Afterpay still managed to hold its place. This was possible because customers were not visiting the stores physically but buying things online.
Now the company has more than 1,000 employees working in different locations. As of now, the total active customer count is more than 14 million.
How does Afterpay Make Money?
Afterpay earns its revenue by getting merchant fees and late payment fees from customers. Other income sources are its foreign subsidiaries like Clearpay, operating in the UK.
Fees from the Merchants
Merchant fees are the main source of income for Afterpay. The merchant pays Afterpay a flat rate of 30-cent per transaction. Additionally, these merchants also pay a 4%-6% variable fee to Afterpay based on the sell value or volume.
These merchants accept Afterpay for a few reasons:
- First, the merchants don’t have to do anything to get the installments from the customers, as Afterpay takes care of that.
- As people are getting the option to buy now and pay later, they tend to buy more items in installments or part payments.
- Afterpay has successfully made a loyal customer base by providing trustable solutions. That’s why the conversion rate of Afterpay is high, which the merchants prefer the most.
Late Payment Fees
Customers do not have to pay a single penny more when they pay for the installments on time. However, when they failed to do so, Afterpay earns money by charging them late payment fees.
The customers can find the installment due date on the invoices. If the payment is not made on time, Afterpay first tries to deduct the installment amount automatically from the customer’s credit or debit cards.
The initial late payment fee is $10. However, another $7 gets charged when the payment remains unpaid for seven days from the due date.
The late payment charge is fixed at $10 for every order below $40. However, the late payment fees for orders above $40 are either $68 or 25% of the original order price.
Funding, Revenue & Valuation of Afterpay
Giant companies like Tencent, Mitsubishi and Coatue took a stake in Afterpay. When the company went public, the IPO was valued at $4.5 million. Currently, the company valuation is more than $47 billion.
In 2019, Afterpay raised a total of $264.1 million, whereas, in only two rounds of the fiscal year 2020, it managed to raise $375.5 million. In Feb 2021, Afterpay has announced a loss of $79.2 million. However, the company still reported a 106% growth in terms of sell.