How Does Afterpay Make Money? The Afterpay Business Model In A Nutshell

Afterpay is a FinTech company providing as a core service the “buy now pay later” solution. When a consumer purchases a product, Afterpay pays the seller and asks the consumer to pay 25%. The remaining 75% is paid in three, fortnightly installments that are also interest-free. Afterpay, in turn, makes money via merchant and late fees.

Business Model Element	Analysis	Implications	Examples
Buy Now, Pay Later (BNPL) Service	– Afterpay offers a Buy Now, Pay Later (BNPL) service that allows consumers to make purchases and pay for them in installments over time. – Users can select Afterpay as a payment option at participating online and in-store retailers. – The service eliminates the need for traditional credit checks and interest fees, making it accessible to a wide range of consumers.	– Appeals to consumers seeking flexibility in their payment options and the ability to budget purchases. – Attracts both online and in-store shoppers looking for convenient installment payment solutions. – Provides a simplified and transparent alternative to credit cards and loans.	When making a purchase at a partner retailer, users can choose Afterpay as a payment option and pay for their items in four equal installments.
Merchant Partnerships	– Afterpay collaborates with a network of online and brick-and-mortar retailers, allowing them to offer the BNPL service to their customers. – Partnering with a diverse range of merchants expands the availability of Afterpay as a payment option.	– Increases the accessibility of Afterpay to consumers by being available at a wide variety of retailers. – Attracts businesses looking to provide flexible payment solutions to their customers without the need for in-house financing. – Drives customer acquisition as shoppers seek out Afterpay-supported stores.	Afterpay partners with numerous retailers across various industries, enabling consumers to use the service at fashion stores, electronics shops, beauty brands, and more.
Zero-Interest and Transparent Fees	– Afterpay does not charge traditional interest rates on purchases. Instead, users pay for their items in equal installments without incurring interest. – The company generates revenue primarily from fees paid by merchants for offering Afterpay as a payment option. – Late fees may apply if users miss a payment, but Afterpay emphasizes transparency in fee structures.	– Appeals to users looking to avoid high-interest charges typically associated with credit cards. – Merchants are willing to pay fees to offer Afterpay as it can lead to increased conversion rates and higher average order values. – Transparent fee structures build trust with both consumers and merchants.	When using Afterpay, users can view the installment amounts and due dates for each payment, ensuring clarity and transparency in the payment process.
User-First Approach	– Afterpay focuses on providing a positive user experience by simplifying the BNPL process. – The company offers features such as a mobile app for managing payments, real-time notifications, and the ability to reschedule payments when needed.	– Enhances user satisfaction and encourages repeat usage of the service. – Mobile app features empower users to manage their finances effectively and stay on top of payments. – Responsiveness to user needs strengthens brand loyalty.	Afterpay’s mobile app allows users to keep track of their purchases, view upcoming payments, and make changes to their payment schedules, providing a user-centric experience.
Global Expansion	– Afterpay has expanded its services internationally, establishing a presence in multiple countries, including the United States, Australia, the United Kingdom, and others. – International expansion allows Afterpay to tap into new markets and attract a diverse user base.	– Enables Afterpay to reach a broader audience and diversify its customer and merchant base. – Capitalizes on the global popularity of online shopping and the demand for flexible payment options. – Strengthens Afterpay’s competitive position by establishing a global footprint.	Afterpay is available to users and merchants in various countries, making it a widely recognized BNPL service worldwide.
Risk Management	– Afterpay employs risk management practices to assess user creditworthiness and make responsible lending decisions. – The company utilizes real-time identity and credit checks during the purchase process to determine a user’s eligibility for the service.	– Mitigates the risk of users defaulting on payments and incurring late fees. – Ensures that the service is offered to individuals who are financially capable of meeting their payment obligations. – Maintains regulatory compliance and responsible lending practices.	When users choose Afterpay as a payment option, the company may perform a quick identity and credit check to assess their eligibility and ability to repay the installments.
Value Proposition	– Afterpay’s value proposition centers on providing consumers with a flexible and interest-free payment solution for their purchases. It offers an alternative to traditional credit cards and loans.	– Appeals to users seeking convenient and transparent payment options for both online and in-store shopping. – Aligns with the preferences of consumers who want to avoid high-interest rates and hidden fees. – Positions Afterpay as a leading player in the BNPL industry.	Afterpay’s value proposition resonates with individuals looking for budget-friendly and interest-free payment solutions when shopping at their favorite retailers.
Customer Segments	– Afterpay caters to a broad customer base, including consumers who prefer installment payments over traditional credit, online shoppers, and individuals looking for budgeting and payment flexibility.	– Targets a diverse range of consumers, from millennials to older age groups. – Attracts online shoppers who want to spread the cost of their purchases over time. – Appeals to customers who may not have access to traditional credit or prefer to avoid it.	Afterpay’s customer segments include online shoppers, fashion enthusiasts, electronics buyers, and more, spanning different demographics.
Distribution Strategy	– Afterpay’s distribution strategy focuses on integrating its BNPL service into the checkout process of partner retailers, both online and in physical stores. – The company also offers a mobile app for users to manage their payments and track their spending.	– Maximizes accessibility by being available at a wide range of retailers, from e-commerce platforms to brick-and-mortar stores. – Provides a convenient mobile app for users to monitor their Afterpay transactions and payment schedules.	Users can access Afterpay as a payment option when making online purchases at partner retailers or use the mobile app to manage their accounts and payments.
Marketing Strategy	– Afterpay utilizes marketing campaigns to raise awareness of its service, attract new users, and engage with its target audience on various channels, including social media, email marketing, and partnerships.	– Builds brand recognition and attracts new users to the platform. – Partnerships with popular brands and influencers help expand its reach. – Utilizes digital marketing to reach online shoppers effectively.	Afterpay collaborates with brands, influencers, and retailers to promote its service and engage with consumers across social media platforms and through email marketing.
Competitive Advantage	– Afterpay’s competitive advantage lies in its user-centric BNPL service, transparency in fee structures, a vast network of merchant partnerships, and its global expansion strategy. – Its ability to appeal to a wide range of consumers and merchants sets it apart from traditional credit providers.	– Positions Afterpay as a leading player in the BNPL industry. – Attracts both users and businesses seeking flexible payment solutions. – Global expansion enhances its competitiveness in the financial technology sector.	Afterpay’s competitive advantage includes its transparent fee structure, diverse merchant partnerships, global reach, and commitment to delivering a user-friendly BNPL experience.

Table of Contents

Origin Story

Afterpay is an Australian financial technology with an additional presence in the UK, Canada, New Zealand, and the United States.

It was founded in 2015 by Nick Molnar and his former neighbor Anthony Eisen. Molnar was a young entrepreneur who was selling the excess stock from his parents’ jewelry business on eBay.

As he worked late into the night packing inventory for shipping, he caught the attention of Eisen and the two quickly became friends.

At some point, they began to discuss the possibility of a company that removed the risk out of a typical retail experience for both the buyer and seller. From there, the idea for Afterpay was born.

When a consumer purchases a product, Afterpay pays the seller and asks the consumer to pay 25%. The remaining 75% is paid in three, fortnightly installments that are also interest-free.

After initial success in Australia, Afterpay now has over 11 million users across the world.

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Afterpay revenue generation

In effect, Afterpay lends 75% of the total purchase price to consumers. But it is not a lender or credit provider in the traditional sense and does not generate revenue through interest fees.

Instead, it makes money in different ways.

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Merchant fees

For every transaction facilitated by Afterpay, the merchant must pay the company a fee.

This fee is 30 cents plus a variable fee of anywhere between 4-6% and comprises the bulk of Afterpay revenue. The exact fee is dependent on the value and volume of all transactions. Merchants that sell more or sell higher-priced items are charged a fee at the lower end of the spectrum.

It should be noted that the merchant is free to sell its products without Afterpay. However, Afterpay claims that providing an installment option increases the average order value by as much as 20%. It also increases the buyer conversion rate.

Afterpay also likely charges a merchant fee to mitigate the risk it takes on a customer defaulting on their payments.

Late fees

Late payment fees are also collected by Afterpay when a consumer fails to make a scheduled payment on time.

The initial late fee is $10. A further $7 will be charged if the fortnightly payment remains unpaid for seven days past the initial due date.

Orders below $40 are capped at the single, initial late fee of $10. For orders above $40, the late fee is capped at 25% of the original order value or $68 – whichever is less.

Key takeaways:

Afterpay is an Australian financial technology company with a presence in most developed, western economies. It was founded by entrepreneurs Nick Molnar and Anthony Eisen who imagined a retail industry free of risk for the buyer and seller.
Afterpay is not a lender in the traditional sense and as a result, does not collect interest fees. However, it does charge merchants a fee for facilitating payments on their behalf.
Afterpay also charges consumers a late fee based on the value of the original order and how long each repayment remains unpaid.

Key Highlights

Service Overview: Afterpay is a FinTech company that offers a “buy now pay later” solution. Consumers can purchase a product and pay only 25% upfront, with the remaining 75% divided into three interest-free, fortnightly installments. Afterpay makes money through merchant fees and late fees.
Founding Story: Afterpay was founded in 2015 in Australia by Nick Molnar and Anthony Eisen. The idea stemmed from Molnar’s experience of selling excess stock from his parents’ jewelry business on eBay. The founders aimed to create a safer retail experience for both buyers and sellers.
Global Presence: After initial success in Australia, Afterpay expanded its services to the UK, Canada, New Zealand, and the United States. It now boasts over 11 million users worldwide.
Revenue Generation: Afterpay doesn’t rely on interest fees like traditional lenders. Instead, it generates revenue through merchant fees and late fees.
Merchant Fees: Merchants using Afterpay’s services pay a fee for each transaction. This fee consists of a fixed component of 30 cents plus a variable fee ranging from 4-6% depending on transaction value and volume. Offering installment options through Afterpay can boost the average order value and conversion rate for merchants.
Late Fees: Afterpay collects late fees when consumers fail to make scheduled payments on time. An initial late fee of $10 is charged, with an additional $7 if the payment remains overdue for seven more days. For orders below $40, the late fee is $10, while orders above $40 are capped at 25% of the original order value or $68, whichever is less.
Risk Management: Afterpay provides an installment option to mitigate the risk of customer default for merchants. By offering this service, merchants can potentially increase sales and revenue.
Unique Lending Approach: Afterpay’s approach to lending is distinct. It lends 75% of the purchase price to consumers without charging interest, focusing instead on facilitating payments for merchants and earning revenue through fees.
Consumer-Friendly Model: Afterpay’s “buy now pay later” model has gained popularity among consumers who appreciate the flexibility and interest-free nature of the payment structure.
Entrepreneurial Background: The founders of Afterpay, Nick Molnar and Anthony Eisen, started with a vision to revolutionize the retail industry by reducing risk and offering a novel payment solution.