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How does Afterpay make money?

In case you are not familiar with this company, It is a company that allows customers to pay in four installments for items purchased. As of the time of writing, they are offering their payment solutions to over 55,000 online retailers.

In addition to these fixed and variable merchant fees, Afterpay makes money primarily through cost-per-click advertising, late payment fees, and late fees on late payments.

It was founded in 2014 by a group of Sydney-based entrepreneurs as a 'Buy Now, Pay Later' company, and in a very short time it became one of the largest players of its kind in the world. According to Square's announcement in August 2021, it will be acquiring Afterpay for US$29 billion.

Afterpay, a company with headquarters in Sydney, Australia, has been around since 2014, marking its first year of operation on the market for buy and pay later (BNPL) shopping. The company provides APR-free POS loans to consumers at checkout who are not required to submit a credit check and with a guarantee of approval. These loans are not credit cards, but instead are an alternative to credit cards.

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Affirm, the company that invented the concept of POS offers a novel way to create POS. The average annual percentage rate at which Affirm charges is 18%, based on a user's credit score. It is important to note, however, that With Afterpay there is no credit check required and the purchase is not subject to interest, which means it is available to a larger market.

Consumers, by taking out a loan, get the benefit of having the option to make four installment payments over the next four years for a 25% refund of the loan value. In addition, the customer makes three additional payments every two weeks after the first payment at the point of sale.

How Does Afterpay Make Money (2022)

Afterpay is a service that allows users to take out as many loans as they like through the service provided once they have registered for an account. Although there is a maximum of $1,500 credit limit per Buy using Afterpay, there is an overall borrowing limit of $2,000 on the loan service.

A great deal of success has been achieved by the company by partnering with leading brands such as Pandora, ASOS, Lululemon, Forever 21, The RealReal, and thousands of others directly in their network of merchants.

If Afterpay does not charge customers an APR on their purchases, then exactly how is it going to make money? What are the means by which it can guarantee approval for every single loan application? Afterpay makes a majority of its revenue by charging late fees to customers who default to repay their loans in installments.

How Afterpay Started?

Nick Molnar and Anthony Eisen, the founders of Afterpay, were based in Sydney, Australia, and they took the company public in 2014.

In spite of the fact that Molnar was 24 years old when he launched Afterpay, he already had a fair amount of experience in his role as an entrepreneur.

He first imported headphones from Japan when he was 14 years old for the purpose of ultimately selling them online. In spite of the fact that this particular business did not succeed, it nevertheless proved to be a valuable lesson to be learned.

While in his teenage years, he spent time working at his parent's jewelry company in Sydney, St Michel Internationale, where he gained a love for the jewelry industry.

At the same time, Australia did not have any startups operating on the same lines, so it was essentially a wide-open playground for everyone to compete.

There is a need to mention that Afterpay had been partnering with Touchcorp Limited, a company providing payments technology, for many years to develop tools and processes in order to prevent and detect fraud.

Due to its work, Touchcorp has been awarded a 33 percent stake in Afterpay as the result of its efforts.

It was only natural that during the next few months, the team would focus mostly on growing its merchant base. As one of the first payments companies on the market, Afterpay was able to quickly sign up business with those merchants.

The sales skills and persuasion skills of Molnar have been overlooked by many as one of the reasons for the growth of the merchant pool.

Afterpay has experienced incessant growth but it was still surprised when the company announced in May 2016 that it would go public - something it was able to do eventually.

On top of its IPO valuation of $150 million, Afterpay was also able to raise another $25 million in funding as a result of its IPO.

Afterpay announced in February 2017, a year after its initial public offering, that it would be merging with Touchcorp, one of its largest shareholders.

Afterpay with its extensive retail network and Touchcorp's advanced payment technology services can now provide its customers with a more tailored shopping experience thanks to the merger of Afterpay's retail network and Touchcorp's advanced payment technology services.

A new entity, Afterpay Touchcorp, (trading under the ticker APT on the Australian stock exchange), has been established as the de-facto market leader dealing with online payment options for Australian consumers.

Thanks to additional resources that were added, Afterpay has continued to grow as a result of its continued growth. A new iPhone app was launched by the company in May 2017 as a part of its expansion into New Zealand, the company's first foreign market.

Just a year after the company was launched, it was announced that it had welcomed its one-millionth customer.

It is also important to point out that testimonials are another important growth channel for the company. The service was constantly promoted by celebrities, such as Kylie Jenner, which attracted a number of new customers as a result.

The American FinTech giant Square, which has been expanding its products and attracting customers for months now, unexpectedly announced on August 29th that it intends to buy Afterpay for US$29 billion in an all-stock deal.

During the first quarter of 2022, it is expected that the deal will close.

There are over 100,000 merchants partners within the Afterpay network today, offering 16 million customers the convenience of using Afterpay.

Future growth engine

In order to continue its growth in the future, Afterpay will continue to build its network of testimonials. In other words, we have a very large database of customers in our system now, with more than one million happy customers, and we continue to add more users and merchants to our system, along with increasing total transaction value.

Social media influencers are employed by the company to spread the word about the company's services to its customer base.

Besides this deal, Afterpay also plans to acquire more companies in the BNPL space in the near future.

Besides this, afterpay has already acquired a Spanish BNPL company called Pagantis for $82 million. According to Afterpay, the company's customers include more than 11 million individuals. According to the company, there are more than 1,000 employees in seven offices around the world.


Due to the fact that Afterpay operates as a fintech company that offers interest-free POS loans in the same field, it faces lots of competition as there are also other players in the same market.

The number of players entering the BNPL market has risen rapidly since 2015 as several large tech companies are seeking to become involved in the BNPL market.

There are many top competitors of Afterpay, from online payment apps to alternatives, such as PayPal, which also offers BNPL services, as well as other payment apps such as Affirm, Sezzle, and Klarna.

How does Afterpay make money?

Through its fees charged to merchants, late payment fees, and advertising costs-per-click, Afterpay earns money through the fees it charges to merchants.

It is also worth noting that Clearpay, a subsidiary they operate in the United Kingdom, generates revenue through their foreign operations.

Afterpay will only be discussed here in terms of what income can be attributed directly to it since its foreign subsidiaries have been operating on the basis of the same kind of monetization pattern.

Merchant Fees

For Afterpay customers, the ability to pay for their purchases over an extended period does not come with any interest charges or additional fees, as previously stated.

This is because instead of paying its own merchants every time they conduct a transaction through its payment gateway, its merchant partners pay the company for them.

A flat fee of 30 cents is charged by Afterpay to merchants for every transaction they make. Furthermore, merchants are also required to pay a variable fee which ranges anywhere from 4 to 6 percent on top of that. However, the fee is relatively low compared to competing services such as Quadpay and Sezzle.

As a merchant is able to sell a certain amount and volume of goods, the actual percentage will vary. The lower the fees for a merchant, the more likely it is to achieve success.

Late Payment Fees

Second, late payment fees are a source of income for the company. A customer is charged a late fee if he or she fails to pay the outstanding balance on time. It should be noted in the invoice that the due date for payment is normally stated.

Afterpay attempts to automatically deduct the installment from a card normally associated with credit and debit card usage to attempt to deduct the payment if it is not made on time.

In the event of late payment, a $10 fee will be applied. The invoice may be charged an additional $7 if it has not been paid within 7 days after it was issued.

There is no late payment fee for orders under $40, but there is a $10 late payment fee for orders over $40. Orders that are over the $40 threshold can be charged up to $68 in late fees.

The firm has been experiencing declines in the amount of revenue from late payment fees as a percentage of its total revenue over the past few years.

Cost Per Click Advertising

It is expected that AfterPay will launch its in-app advertising capability in August 2021, with which merchant partners will be able to advertise their own promotions.

Within the Afterpay Android and iOS apps, AfterPay's very own ads will be displayed. Revenue is generated by cost-per-click (CPC) advertising, which is the company's primary source of revenue.

The merchant is therefore responsible for paying Afterpay a small fee for every time a customer clicks on one of the advertised placements.

The popularity of Afterpay's app has led to the thought that promoting on its platform may be a highly profitable option for those merchants who are looking for ways to increase sales.

Afterpay Funding, Valuation & Revenue

Crunchbase, a company that tracks venture capital funding, reports that Afterpay has raised a total of $448.7 million across 3 rounds of funding.

Some of the investors in the company include Coatue, Tencent, as well as Mitsubishi. During the company's debut on the stock exchange in June 2017, it raised another $25 million.

During the period of the company's IPO, the company was valued at $1.6 billion. In the time since this article was written, Afterpay's valuation has risen to $31.9 billion (meaning the price of the acquisition that Square previously sought when it decided to acquire the company).

Afterpay generated revenue of AU$924.7 million in the fiscal year 2021. This was an increase of 78 percent from the previous year. Meanwhile, the company lost a whopping AU$159.4 million over the same timespan.


How much of a cut does Afterpay take?

Using Afterpay, online shops are charged a flat rate of 30 cents per transaction and a commission based on the volume and value of transactions under the platform.

You will have a lower percentage fee per sale if you sell more at a higher value. It is usually charged in the range of 5 percent to 6 percent depending on the value of the transaction.

How much do retailers pay for Afterpay?

A charge of 30 cents per transaction will be charged to retailers, as well as a commission of 4 - 6%. The commission is lower if the transaction value is higher.

Does Afterpay have a fee?

As long as you make a timely payment on your Afterpay loan, there are no fees associated with it. The late fees are set, capped, and are not accumulated over the period of time that you pay late.

In addition to a $10 late fee, customers who do not make their payment by the end of the seven-day grace period will also be charged $7 more.

Do businesses have to pay for Afterpay?

The Afterpay platform charges a merchant fee of 4.17% for all sales made through it. A customer can also pay late fees if they cannot make the payment on time.

You can check out the business model of Afterpay here: 

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