How To Start a Company Like AfterPay & Make It Successful

September 7, 2021

How to start a company like AfterPay?

Prior to understanding what it takes to establish a company like AfterPay, educate yourself on the fundamentals of this business model.

In order to start a company like Afterpay, a strategic plan with outsmarting techniques is required. For instance, Afterpay is a business that allows clients to pay for things in four payments. It collaborates with over 55,000 online merchants who have chosen to accept its payment methods. Afterpay makes money by charging merchants a set and variable (%) fee, as well as late payment costs. Similar to these inner relational transactions with merchants and customers, has made it the most modern & preferred payment app.

Currently, Afterpay is a gateway to 3.6 million active customers today!

Afterpay, based in Sydney, was founded in 2014 and has since evolved to become one of the world’s leading players in the ‘Buy Now, Pay Later’ industry. Square announced in August 2021 that it would buy Afterpay for $29 billion. You might also need to get educated about what you need to do to start a finance company.

No. of Active Customers, Income and Underlying Sales of Afterpay in Australia and NZ

AfterPay Active Customers	Segment Income (AUD million)	Underlying Sales (AUD million)	Year
2.8 million	207.87	4,314	2019
3.3 million	313.69	6,567	2020
3.6 million	427.38	9,447	2021

AfterPay in Australia & New Zealand

Business Model Based on Afterpay

Afterpay’s business model revolves around the Buy-now-pay-later (BNPL) service, which allows customers to pay for things over the course of four installments. Consumer finance’s fastest-growing market is BNPL. The consumer and the bank/credit card company have a relationship in the credit card business model. BNPL, on the other hand, is a whole other story. In this case, the transactions begin with the consumer and the merchant, almost as if they were a loan. The BNPL market’s primary customers are Millenial and Gen-Z buyers, who are more budget-conscious and cautious than those who pay with standard credit cards.

Afterpay encourages clients to use its payment plan to make purchases from its partner merchants. The company operates on the basis of an affiliate marketing business model, in which businesses profit from affiliate commissions. Afterpay has been in the market for 5 years and is on track to have another great year, with a stock price growth of nearly 260 percent since January. It has had tremendous success in recent years and was listed on the ASX in 2016 with a $25 million IPO.

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Converting Late Charges as a Revenue Source

With Afterpay, there are two fees to consider. The cost of the thing you’re purchasing is one of them. The other is a penalty for late payments. You will be alerted if a deduction is unsuccessful, and you will have the option to log in and select an alternative payment method. If you don’t, you’ll be charged a $10 late fee. You will be charged an additional $7 if you do not make a payment within 7 days. You can be charged a maximum of one $10 late fee for each Afterpay order. Late penalties of 25% of the original purchase or a maximum of $68 – whichever is greater – can be applied to any order of $40 or more. If you don’t pay your bills, Afterpay has the authority to report you to a credit bureau.

Risks Involved

A merchant may allow Afterpay on their website for three reasons. The merchant may be able to make a sale that it would not have made otherwise, resulting in an increase in income. It is collecting cash upfront, which helps to strengthen its financial position. In addition, the merchant avoids the danger of not being paid if a client fails. However, if the client fails and does not pay the amount owing, Afterpay faces a risk. Afterpay’s business strategy is similar to non-recourse factoring.

Factoring accounts receivables come in two flavors: with and without recourse. The lender will refund uncollected debts to the firm when factoring in recourse. The lender is liable for collecting unpaid bills from the client and cannot return them when factoring without recourse. In other words, the business maintains the risk of non-payment when factoring in recourse. If a client fails to make a payment, Afterpay imposes a $10 late fee, plus another $7 after seven days, to deter this behavior. If the client fails not to pay, Afterpay will write off both the original loan and the penalties. In Afterpay’s books, the fines are nevertheless accounted for as income. The greatest threat to Afterpay is not from consumers who fail on their loans, but from those who do not use the program at all.

Customers making cash or credit card purchases may soon demand a 4% cash discount – the same percentage they pay Afterpay – from online businesses. If merchants agree and provide everyone a 4% cash discount, Afterpay’s business model will lose its distinctiveness. The cost of the company’s borrowing would no longer be hidden.

What services does Afterpay provide to its clients?

Customers’ needs are met by Afterpay, which other payment sites have missed. It became a prominent player in the fintech business as a result of its uniqueness. Here are some of the values it provides to its clients:
Customers may effortlessly purchase their favorite things from partner stores and pay the final amount in installments without incurring any interest.

Customers that have an excellent payment history are rewarded through Afterpay. Afterpay does not run a credit check and instead bans the defaulter’s account until the problem is remedied.
E-commerce enterprises can easily integrate AfterPay into their online stores (Stripe, Shopify, etc.) and use its services without effort.

How Does It Work?

Afterpay operates by offering its customers the BNPL (Buy-now-pay-later) service with no interest, no credit checks, and no additional costs if they pay on time. The Afterpay app is where you’ll find this service. When a customer uses Afterpay to pay for anything, the money is split into four installments.

He or she will be required to make a first downtime payment in relation to that purchase, after which the consumer will have six weeks to complete the remaining payment. To make use of this service, go to the checkout page and select Afterpay as your payment method. To make your first payment and finalize the purchase, you can instantly create an Afterpay account. The things you ordered will be mailed to you by the retailer after you complete this transaction.

If you want to use Afterpay in a physical store, all you have to do is download the app and create an account. After you’ve created an account, go to the app’s “card” tab. You’ll be able to make a digital Afterpay card that you can use with Apple Pay or Google Pay. You may easily log into the Afterpay app after making a purchase this way to check the date and amount of your next due payment. You can pay Afterpay with a credit card or a debit card, or you can set up automatic payments under the settings option.

Afterpay, as previously stated, does not charge interest, although it may impose a fee if you pay late. The late fee for US customers is limited to 25% of the order total. Here’s how to utilize Afterpay while shopping in three easy steps.

To shop for your favorite brands, download the app.
While shopping, view your installments and choose Afterpay as your payment method.
You can also shop in-store with an Afterpay card if you have one set up. Log in to your account, add your digital wallet, and pay with a tap.

You can now pay the first of the four installments straight away and the remainder of the money over the course of six weeks.

Some Essential Questions People Do Ask About AfterPay

When does Afterpay charge installments & late fees?

In simple words, Afterpay would never charge you additionally. Except for charging at par on any purchases made due to its interest-free model. This does not mean you to be careless about the installments. On a failed attempt on the due dates, it does charge you a late fee of $10 for purchases under $40. Further, a consistent charge of 7% if the proceedings remain unpaid.

For purchases made $40 and above, the late fee would be around $68 or 25% whichever is lesser.

Are Afterpay and Zippay similar?

Though both the payment models offer interest-free buy-now-pay-later services. Their terms are quite different impacting consumer behavior differently. Afterpay charge the equal amount in 4 installments. Whereas, Zip pay charges a minimum of around $40 on a monthly basis.

Zippay does charge an account fee of $7.95 p/m on the outstanding balance. On the other hand, Afterpay does not have any account fee pay integration.

Zippay’s late fee is $5 which is lesser than Afterpay’s $10-$68 (based on the buy amount).

The small to big service and product companies do prefer ZipPay as it seems to be lucrative in terms of flexible pay. Whereas, the mass number of consumers have accepted AfterPay as a shopping pay-app with clarity of equal amount of installments fortnightly.

Both the models have their own pros and cons. Now it’s up to you which one would you prefer for your shopping. And which options to avail for your customers.

How Afterpay makes money?

Afterpay generally earns from the merchant’s perspective. Though the business model seems lucrative from customers’ point of view. It does promise to bring more customers to its partner merchants. Which then allows the service to earn a percentage on every transaction made.

If the service is not charging any amount to one party. It’s obvious that it’ll have to acquire a commission from the other party (merchants); in order to smoothly function the business.

The second way how Afterpay makes money is by charging a late fee between $10 to $68 or 25%. The fee process is already mentioned in the first query.

How Afterpay refund works

It’s quite simple! Depending on when the return request is being placed – Before the 2nd installment is due or after.
If the 2nd installment is processed already, then the refund was requested.
The very first step of canceling the upcoming payments takes place once the refund is in progress. The initial two installments made are refunded after the return of an item is successfully processed.

Who started Afterpay?

Afterpay was founded by Nick Molnar and Anthony Eisen in October 2014.
Preceding, Nick launched the leading online jewelry platform Ice.com in America. Expanding it to Iceonline.com.au in Australia. His formations soon were recognized as the largest online-only retailer of jewelry and watches.

Further, he took the business to the most preferred platform: eBay. This brought an additional revenue source for the business.

Anthony Eisen, prior to establishment, was involved in investment banking. He’s specialized in mergers and acquisitions in Australia and the United States. Further, moving a step into actively indulging as a Chief Investment Officer at Guinness Peat Group (GPG).

Where is Afterpay located?

Currently, Afterpay is being served in Australia, New Zealand, the United States, the United Kingdom, and China.

Addresses: –
406 Collins St
Melbourne, VIC 3000, AU (Headquater)

Buckingham St
Surry Hills, New South Wales 2010, AU

Auckland, NZ

London, GB

Manchester, GB

New York, US

San Francisco, US

Shanghai, CN

Can I use Afterpay for flights?

For travel within or outside Australia, for now, Afterpay is available for Jetstar flights. The conditions are the flight ticket rates should be under or equal to $3000 AUD. One also has to pay 1.5% of the payment fee which is again interest-free. The amount can be paid in 4 installments as usual.

Afterpay vs Credit Card – Which One Is Better?

It’s easy for users to compare Afterpay with other credit providers because it is based on a standard credit agreement.
Afterpay is perfect for people who are looking for an alternative to traditional bank financing but don’t have the cash flow or collateral required by other lenders.
Whereas, credit card gives more control over paments to make with higher spending limit comparatively.
The another advantage of credit card is you get to maintain credit score,
Afterpay doesn’t ask for any solid verification while signing up. It also doesn’t impact or improve the credit score.
The only disadvantage with credit card is the interest paid on transactions. Also, acquiring a card goes through a strict protocol of providing financial proofs to show your eligibility.
And that’s the reason why people use Afterpay over credit card, because it’s interest-free and no registration hectic.

Technology Incorporated With

The Afterpay service is provided through Afterpay Touch’s mobile app for iOS and Android devices.

AfterPay Annual Report FY2021

Access Report

Wrapped Up Summary

Afterpay is a global online retailer that offers shoppers the ability to purchase goods and services without having to worry about the upfront cost.

Afterpay offers four payment plans for its customers. The first plan is Pay Now, which requires payment in full at the time of purchase. This option is available on all items but excludes transport companies like Deliveroo, Uber Eats, and Airtasker services.

The second plan – No Credit Check – also requires payment in full but there are no credit checks or monthly fees attached to this plan. Afterpay has two more plans that offer either weekly or fortnightly repayments over a maximum of 56 weeks. These plans require an upfront fee or quarterly fee depending on which option you choose.

Conclusion Over Starting a Company Like AfterPay

Afterpay’s success is based on its ability to spot a market need and the marketing skills that have earned its consumers’ faith in the BNPL methodology. The business took advantage of every chance that presented itself. Afterpay’s first concern, according to its business model, is the customer’s convenience in making transactions, not the price. Customers may quickly purchase their preferred item and pay in four installments, which makes managing their finances easier and more flexible.

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