Afterpay Limited (abbreviated as Afterpay or APT) is an Australian financial technology company operating in Australia, the United Kingdom, Canada, the United States, and New Zealand. Afterpay was founded in 2015 by Nick Molnar and Anthony Eisen.
In June 2017, Afterpay merged with one of its technology suppliers, Touchcorp, to form the Afterpay Touch Group. In November 2019, the company was renamed Afterpay Limited.
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.
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. 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.. On May 21, 2020, the company announced that its operations had grown to five million active customers in the US.
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. 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.
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. This plan would entail the acquisition of Singapore-based, Indonesia-focused buy-now-pay-later service EmpatKali.
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.
Millennials are Afterpay's main customer demographic, comprising 75% of all users. Another significant segment of Afterpay's customer base is university students, of which one third have been found to use short-term borrowing.
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.
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”.
The rise of 'buy now, pay later' services such as Afterpay has been attributed as a cause of decreasing credit card use in Australia. From 2018 to 2019, the number of credit card accounts dropped nearly 5% from 16.7 million to 15.89 million, with 69% of millennials using their credit card less as a result of Afterpay.
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.
Market commentators suggest that while buy-now-pay-later payment options (such as Afterpay and its competitors) are showing significant upside, clarify] 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).[
In 2018, Afterpay announced it earned 24.4% of its income from late fees and 75.6% from merchant fees. Critics have argued that the service may cause financial stress and the accumulation of debt. 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". Despite this negative press, 95% of payments have not received a late fee. 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). The company supported the introduction of these powers as a way to provide regulatory oversight and protect consumers.
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. 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.
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.
Afterpay has a number of competitors, including Affirm, Laybuy, Zip (formerly known as ZipMoney), Klarna, Splitit, Openpay, and Sezzle.