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.

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.

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List of FinTech Business Models


Acorns is a fintech platform providing services related to Robo-investing and micro-investing. The company makes money primarily through three subscription tiers: Lite – ($1/month), which gives users access to Acorns Invest, Personal ($3/month) that includes Invest plus the Later (retirement) and Spend (personal checking account) suite of products, Family ($5/month) with features from both the Lite and Personal plans with the addition of Early.


Started as a pay-later solution integrated to merchants’ checkouts, Affirm makes money from merchants’ fees as consumers pick up the pay-later solution. Affirm also makes money through interests earned from the consumer loans, when those are repurchased from the originating bank. In 2020 Affirm made 50% of its revenues from merchants’ fees, about 37% from interests, and the remaining from virtual cards and servicing fees.


Alipay is a Chinese mobile and online payment platform created in 2004 by entrepreneur Jack Ma as the payment arm of Taobao, a major Chinese eCommerce site. Alipay, therefore, is the B2C component of Alibaba Group. Alipay makes money via escrows transaction fees, a range of value-added ancillary services, and through its Credit Pay Instalment fees.


Betterment is an American financial advisory company founded in 2008 by MBA graduate Jon Stein and lawyer Eli Broverman. Betterment makes money via investment plans, financial advice packages, betterment for advisors, betterment for businesscash reserve, and checking accounts.


Venmo is a peer-to-peer payments app enabling users to share and make payments with friends for a variety of services. The service is free, but a 3% fee applies to credit cards. Venmo also launched a debit card in partnership with Mastercard. Venmo got acquired in 2012 by Braintree, and Braintree got acquired in 2013 by PayPal.


Chime is an American neobank (internet-only bank) company, providing fee-free financial services through its mobile banking app, thus providing personal finance services free of charge while making the majority of its money via interchange fees (paid by merchants when consumers use their debit cards) and ATM fees.


Coinbase is among the most popular platforms for trading and storing crypto-assets, whose mission is “to create an open financial system for the world” by enabling customers to trade cryptocurrencies. Its platform serves both as a search and discovery engine for crypto assets. The company makes money primarily through fees earned for the transactions processed through the platform, custodial services offered, interest, and subscriptions.


Compass is a licensed American real-estate broker incorporating online real estate technology as a marketing medium. The company makes money via sales commissions (collected whenever a sale is facilitated or tenants are found for a rental property) and bridge loans (a service allowing the seller to purchase a home before the revenue from the sale of their previous home is available).


Dosh is a Fintech platform that enables automatic cash backs for consumers. Its business model connects major card providers with online and offline local businesses to develop automatic cash back programs. The company makes money by earning an affiliate commission on each eligible sale from consumers.


E-Trade is a trading platform, allowing investors to trade common and preferred stocks, exchange-traded funds (ETFs), options, bonds, mutual funds, and futures contracts, acquired by Morgan Stanley in 2020 for $13 billion. E-Trade makes money through interest income, order flow, margin interests, options, future and bonds trading, and through other fees and service charges.


Klarna is a financial technology company allowing consumers to shop with a temporary Visa card. Thus it then performs a soft credit check and pays the merchant. Klarna makes money by charging merchants. Klarna also earns a percentage of interchange fees as a commission and for interests earned on customers’ accounts.


Lemonade is an insurance tech company using behavioral economics and artificial intelligence to process claims efficiently. The company leverages technology to streamline onboarding customers while also applying a financial model to reduce conflicts of interest with customers (perhaps by donating the variable premiums to charity). The company makes money by selling its core insurance products, and via its tech platform, it tries to enhance its sales.


Monzo is an English neobank offering a mobile app and a prepaid debit card for consumers and businesses. It was one of the first app-based banks to enter the UK market, founded by Gary Dolman, Jason Bates, Jonas Huckestein, Paul Rippon, and Tom Blomfield in 2015. All were employees of Starling Bank, a similar neobank challenging the dominance of established financial institutions in England. The company enjoys many revenue streams: business and consumer subscriptions, interchange and overdraft fees, personal loans, and more.


NerdWallet is an online platform providing tools and tips on all matters related to personal finance. The company gained traction as a simple web application comparing credit cards. NerdWallet makes money via affiliate commissions determined according to the affiliate agreements.


Quadpay was an American fintech company founded by Adam Ezra and Brad Lindenberg in 2017. Ezra and Lindenberg witnessed the rising popularity of buy-now-pay-later service Afterpay in Australia and similar service Klarna in Europe. Quadpay collects a range of fees from both the merchant and the consumer via merchandise fees, convenience fees, late payment, and interchange fees.


Revolut an English fintech company offering banking and investment services to consumers. Founded in 2015 by Nikolay Storonsky and Vlad Yatsenko, the company initially produced a low-rate travel card. Storonsky in particular was an avid traveler who became tired of spending hundreds of pounds on currency exchange and foreign transaction fees. The Revolut app and core banking account are free to use. Instead, money is made through a combination of subscription fees, transaction fees, perks, and ancillary services.


Robinhood is an app that helps to invest in stocks, ETFs, options, and cryptocurrencies, all commission-free. Robinhood earns money by offering: Robinhood Gold, a margin trading service, which starts at $6 a month, earn interests from customer cash and stocks, and rebates from market makers and trading venues.


SoFi is an online lending platform that provides affordable education loans to students, and it expanded into financial services, including loans, credit cards, investment services, and insurance. It makes money primarily via payment processing fees and loan securitization.


Squarespace is a North American hosting and website building company. Founded in 2004 by college student Anthony Casalena as a blog hosting service, it grew to become among the most successful website building companies. The company mostly makes money via its subscription plans. It also makes money via customizations on top of its subscription plans. And in part also as transaction fees for the website where it processes the sales.


Stash is a FinTech platform offering a suite of financial tools for young investors, coupled with personalized investment advice and life insurance. The company primarily makes money via subscriptions, cashback, payment for order flows, and interest for cash sitting on members’ accounts.


Venmo is a peer-to-peer payments app enabling users to share and make payments with friends for a variety of services. The service is free, but a 3% fee applies to credit cards. Venmo also launched a debit card in partnership with Mastercard. Venmo got acquired in 2012 by Braintree, and Braintree got acquired in 2013 by PayPal.


Wealthfront is an automated Fintech investment platform providing investment, retirement, and cash management products to retail investors, mostly making money on the annual 0.25% advisory fee the company charges for assets under management. It also makes money via a line of credits and interests on the cash accounts.


Zelle is a peer-to-peer payment network that indirectly benefits the banks’ consortium that backs it. Zelle also enables users to pay businesses for goods and services, free for users. Merchants pay a 1% fee to Visa or Mastercard, who share it with the bank that issued the card.

Read Next: Fintech Business Models, IaaS, PaaS, SaaSEnterprise AI Business ModelCloud Business Models.

Read Next: Affirm Business Model, Chime Business Model, Coinbase Business Model, Klarna Business Model, Paypal Business Model, Stripe Business Model, Robinhood Business Model.

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