Afterpay Limited (abbreviated as Afterpay) is an Australian financial technology company best known for its buy now, pay later (BNPL) service. It operates in Australia, the United Kingdom, Canada, the United States, and New Zealand. Afterpay was founded in 2014 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. In August 2021, Afterpay and American payments company Square, Inc. (later renamed Block, Inc. in December 2021) announced they had entered into arrangements for Square to acquire Afterpay for 29 billion (39 billion), which was later completed on January 31, 2022.
History
Afterpay was founded by Molnar and his then-neighbor, Eisen, in October 2014. On 4 May 2016, the company listed on the Australian Securities Exchange with an 25 million IPO. In January 2018, American venture capital fund Matrix Partners announced its intention to invest 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. With reported underlying sales of 4.7 billion in the 11 months to May 2019, in June 2019, Afterpay raised 317.2 million in fresh capital through a share issue, in part to help fund its international growth.
Two months later, the company revealed that it had over two million active users and 6,500 merchants in the US and announced a strategic partnership with Visa Inc. On 21 May 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 BNPL service, for a total consideration of one 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.
During the COVID-19 pandemic, many retailers closed physical stores and potential customers were increasingly hesitant to shop in-person. The 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”. 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.
In August 2021, Afterpay and Square, a digital payments company, announced that Afterpay would be acquired by Square. Square will pay 39 billion in stock for the acquisition and the process is expected to be finalised in the first quarter of 2022. It was reported that Molnar and Eisen will lead Afterpay's merchant and consumer businesses inside Square. Shares of Afterpay in Australia closed higher after the news.
In November 2021, Afterpay announced that they would launch BNPL for subscriptions, such as for gym memberships and entertainment subscriptions, to U.S customers.
On January 12, 2022, the Bank of Spain approved Block's takeover bid of Afterpay, marking the final hurdle in the acquisition merger. On January 19, 2022, Afterpay suspended trading of its shares on the ASX. On January 20, 2022, the merged entity trading as Block commenced trading on the ASX under the ticker SQ2. On January 31, 2022, Block completed the acquisition of Afterpay, officially making it a subsidiary.
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 with four equal fortnightly repayments. The repayments are interest-free, but if they are not paid every two weeks as required, late fees of (in Australia) $10 per indiscretion are incurred.
The business is paid the full amount within a few days, less a processing fee of 4.19% (as of January 2019). Afterpay bears the risk of default by the customer. Its income consists of processing fees and late payment fees.
Impact, criticism and regulation
The rise of BNPL services such as Afterpay has been cited 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.