Afterpay

Afterpay Limited (abbreviated as Afterpay or APT) is an Australian financial technology company operating in Canada, the United Kingdom, Australia, the United States, and New Zealand. Afterpay was founded in 2015 by Nick Molnar and Anthony Eisen.[2] In June 2017, Afterpay merged with one of its technology suppliers, Touchcorp, to form the Afterpay Touch Group.[3] In November 2019, the company was renamed Afterpay Limited.[4]

Afterpay Limited
Type of businessPublic
Type of site
Financial technology
Traded asASX: APT
Founded2015 (2015)
Area servedAustralia, New Zealand, Canada, United States, United Kingdom
Key people
  • Nicholas Molnar (Global Chief Revenue Officer &
    Executive Director, co-founder)
  • Anthony Eisen (co-founder, CEO)
IndustryFinancial technology
Revenue AU$ 251.6 million (June 2019)[1]
Subsidiaries
  • Afterpay Holdings Pty Ltd
  • Afterpay US, Inc.
  • Afterpay Australia Pty Ltd
  • Touchcorp Limited
  • Clearpay Finance Limited
  • Afterpay Canada Limited
URLafterpay.com
Users 7.3 million (Feb 2020)
Current statusActive
Native client(s) on

Business Model

Afterpay is best known for its "pay later" service that allows in-store and online customers to purchase a product immediately and pay for it later with four equal repayments. The repayments are interest-free, but if they are not paid every 2 weeks as required, late fees are accrued.[5]

Expansion

In January 2018, American venture capital fund Matrix Partners announced its intention to invest AU$19.4 million in Afterpay to support its entry into the US retail market. Afterpay was launched in the US in mid-May 2018 with retailers such as Anthropologie, Free People, and Urban Outfitters.[6] In August 2019, the company revealed that it had over 2 million active users and 6,500 merchants in the US and announced a strategic partnership with Visa Inc..[7][8] On May 21, 2020, the company announced that its operations had grown to five million active customers in the US.[9]

In August 2018, Afterpay acquired 90% of the equity in Clearpay, a UK based buy-now-pay-later service, for a total consideration of 1 million Afterpay shares.[10][11][12] In its 2019 financial year update, the company announced that its growth in the UK was faster than that of the US, with more than 200,000 UK customers joining in the first 15 weeks.[1][8]

In 2020, Afterpay unveiled plans to expand its services to at least four continents, including Asia, to capitalize on the online shopping surge brought by the COVID-19 pandemic.[13] This plan would entail the acquisition of Singapore-based, Indonesia-focused buy-now-pay-later service EmpatKali.[13]

Customer segments
Over 15,000 brands and retailers accept Afterpay

As of February 28, 2020, Afterpay was recorded to have 3.6 million active customers in the US, 3.1 million active customers in Australia and New Zealand, and 0.6 million active customers in the UK.[14]

Millennials are Afterpay's main customer demographic, comprising 75% of all users.[15] Another significant segment of Afterpay's customer base is university students, of which one third have been found to use short-term borrowing.[16]

Afterpay has been ‘extremely popular among young women’ and has garnered a loyal customer base, as shown through a Facebook group titled “We love Afterpay” which has over 124,000 members.[17]

Growth over the coronavirus pandemic

During the COVID-19 pandemic, many retailers closed physical stores and potential customers were increasingly hesitant to shop in-person. The Australian Financial Review commented that Afterpay's growth was spurred by "investors [who] are seeking exposure to e-commerce as the coronavirus crisis pushes more shopping online, and continuing government stimulus will keep bad debts low”.[18]

Impact on the retail landscape
The rise of borrowing platforms such as Afterpay has been hypothesized as a cause of decreasing credit card use

The rise of 'buy now, pay later' services such as Afterpay has been attributed as a cause of decreasing credit card use in Australia.[19] From 2018 to 2019, the number of credit card accounts dropped nearly 5% from 16.7 million to 15.89 million,[20] with 69% of millennials using their credit card less as a result of Afterpay.[21]

Concerns have been raised that Afterpay may create excessive risk for consumers due to Afterpay offering its services to all customers regardless of their financial circumstances. Some customers may increase their debt levels, and businesses may not receive full payment for their goods/services if a customer defaults. Furthermore, there is concern that this industry is not as tightly regulated as other financial services.[22]

Criticism and regulation

Market commentators suggest that while buy-now-pay-later payment options (such as Afterpay and its competitors) are showing significant upside, for Australian retail sales they may be unable to sustain such growth unless they continue to show they are able to generate larger basket sizes (i.e., extra sales that consumers would not otherwise have made).[23]

In 2018, Afterpay announced it earned 24.4% of its income from late fees and 75.6% from merchant fees.[24] Critics have argued that the service may cause financial stress and the accumulation of debt.[25] Some news outlets have called Afterpay a scheme, with PRObono Australia stating that it is "putting vulnerable young people into vicious cycles of debt that follow them long after they stop spending".[26] Despite this negative press, 95% of payments have not received a late fee.[27] In April 2019, legislation was passed to provide ASIC with "Product Intervention Powers" (PIP). These powers provide ASIC with authority to intervene where it identifies a risk of significant detriment to retail consumers (including those using buy-now-pay-later services like Afterpay).[28][29] The company supported the introduction of these powers as a way to provide regulatory oversight and protect consumers.[30]

In June 2019, Afterpay disclosed that it was under probe by AUSTRAC for potential breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF regulations). The company is "in dialogue" with the regulators, and the outcome of the probe has yet to be determined.[31] AUSTRAC, upon identifying several concerns with its compliance, ordered the appointment of an external auditor at Afterpay's expense to examine its compliance with the AML/CTF regulations.[32][33]

In November 2020, the ASIC released a report on the Buy-Now-Pay-Later industry, highlighting the need for consumer protections via existing and impending regulatory changes, yet did not call for any new regulation. The Australian Finance Industry Association is expected to release its self-regulatory code of practice on March 1, 2021.[34]

Competition

Afterpay has a number of competitors, including Affirm, Laybuy,[35] Zip (formerly known as ZipMoney), Klarna, Splitit, Openpay, and Sezzle.[36][37][38]

References
  1. "FY2019 Results Announcement" (PDF). Afterpay Touch Investor Centre. Retrieved 28 August 2019.
  2. Willis, Charlotte. "How a recession gave one Aussie guy a billion-dollar business idea". news.com.au. Nationwide News Pty Limited. Retrieved 7 January 2021.
  3. Simmons, David. "Afterpay and Touchcorp Merger is Now Complete". Business News Australia. Business News Australia. Retrieved 31 March 2019.
  4. "Results of 2019 Annual General Meeting". APT: Announcements. Australian Securities Exchange. Retrieved 7 November 2020.
  5. Bourlioufas, Nicki. "Afterpay's US Foray Carries High Expectations". FN Arena. FN Arena. Retrieved 31 March 2019.
  6. Faint, Paris. "Afterpay lands in the US, keen for a slice of $3.8 trillion market". Business News Australia. Retrieved 1 April 2019.
  7. Kruger, Colin (9 August 2019). "Add now, profit later: Afterpay wins half a million new US customers". The Sydney Morning Herald. The Sydney Morning Herald. Retrieved 9 August 2019.
  8. Eyers, James (27 August 2019). "Afterpay customers exceed 5 million". Australian Financial Review. Retrieved 28 August 2019.
  9. "Afterpay share price on watch after hitting 5 million active US customers". The Motley Fool Australia. The Motley Fool Australia. 21 May 2020. Retrieved 23 May 2020.
  10. "International Expansion Progresses and Capital Raising" (PDF). ASX Announcement. Afterpay. Retrieved 1 April 2019.
  11. Baird, Roger. "Afterpay fine tunes UK expansion". Altfi. Altfi. Retrieved 1 April 2019.
  12. Wightman-Stone, Danielle. "Afterpay Touch Group launches 'Clearpay' in the UK". Fashion United. Retrieved 7 June 2019.
  13. "Tech in Asia - Connecting Asia's startup ecosystem". www.techinasia.com. Retrieved 11 December 2020.
  14. PYMNTS (28 February 2020). "Afterpay Has More US Customers Than Australian". PYMNTS.com. Retrieved 30 October 2020.
  15. "Afterpay shows Millennials the new force in markets". Australian Financial Review. 18 January 2019. Retrieved 30 October 2020.
  16. West, Tracey; Cull, Michelle (17 July 2020). "Future Expectations and Financial Satisfaction*". Economic Papers: A journal of applied economics and policy: 1759–3441.12292. doi:10.1111/1759-3441.12292. ISSN 0812-0439.
  17. Women, consumption and paradox. Malefyt, Timothy de Waal; McCabe, Maryann. Abingdon, Oxon. ISBN 978-1-003-02810-9. OCLC 1134458753.CS1 maint: others (link)
  18. "Afterpay defies gravity amid e-commerce scramble". Australian Financial Review. 3 July 2020. Retrieved 30 October 2020.
  19. Khadem, Nassim (17 August 2020). "Australians ditch credit cards as millennials turn to 'buy now, pay later' players like Afterpay, Zip". Retrieved 8 January 2021.
  20. Reserve Bank of Australia (2019). "Payments Data". Retrieved 30 October 2020.
  21. Alpha Beta (2019). "How millennials manage money". Alpha Beta Strategy Economics.
  22. "Investor frenzy in 'buy now pay later' as Australians wipe billions of dollars off credit card debt". www.abc.net.au. 16 August 2020. Retrieved 18 November 2020.
  23. Mitchell, Sue. "Retailers face Afterpay hangover, says UBS". Australian Financial Review. Australian Financial Review. Retrieved 31 March 2019.
  24. Chau, David. "Afterpay's late fees make up 24pc of its income; ASIC recommends buy now, pay later law reform". ABC. Retrieved 10 September 2018.
  25. McGowan, Michael. "Afterpay: buy-now pay-later scheme soars in popularity but experts sound warning". The Guardian. Retrieved 10 September 2018.
  26. Michael, Luke. "Journalist". probonoaustralia.com.au. PRObono Australia. Retrieved 14 March 2019.
  27. Boyd, Tony. "Afterpay regulatory risks fading". Financial Review. Retrieved 4 February 2019.
  28. Bindi, Tas. "ASIC's new product intervention powers becomes official". The Adviser. Retrieved 7 June 2019.
  29. "Design and Distribution Obligations and Product Intervention Powers legislation has been passed". Hall and Wilcox. Retrieved 7 June 2019.
  30. "Business Update (6 June 2019)" (PDF). Afterpay Investor Centre. Retrieved 7 June 2019.
  31. Kruger, Colin. "Austrac scrutinising Afterpay over anti-money laundering compliance". Sydney Morning Herald. Sydney Morning Herald. Retrieved 7 June 2019.
  32. "AUSTRAC orders audit of Afterpay's compliance with financial crime legislation". AUSTRAC. Retrieved 13 June 2019.
  33. Han, Misa; Shapiro, Jonathan (13 June 2019). "AUSTRAC orders Afterpay to hire external auditor". The Australian Financial Review. Retrieved 13 June 2019.
  34. "One in five buy now, pay later users is missing payments," Australian Financial Review, November 16, 2020.
  35. Derwin, Jack (13 September 2019). "Laybuy has already beaten Afterpay in New Zealand – now it's launching in Australia and bringing half a million Kiwis with it". Business Insider Australia. Retrieved 22 October 2019.
  36. ""Shop Now, Pay Later" is Becoming a Major Ecommerce Trend". www.americaneagle.com. Retrieved 30 November 2018.
  37. Ayers, James. "Afterpay's quest to be the global platform connecting retailers with Millennials". Australian Financial Review. Australian Financial Review. Retrieved 31 March 2019.
  38. Woodyatt, Amy. "The rise of 'buy now, pay later'". CNN. Retrieved 30 September 2019.
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