Afterpay was founded in 2015 by Nick Molnar and Anthony Eisen to provide a platform for allowing retailers to offer online layby. With the introduction of the Afterpay mobile app in 2017, Afterpay expanded its offerings to also be available for use at in-store retail locations. In 2017 Afterpay merged with one of its technology suppliers, Touchcorp. Subsequent to the merger, Afterpay's business operations consist of "buy now" and "pay later" business segments. Its pay later business enables retailers to offer their customers the facility to buy now and pay later without requiring traditional credit, upfront fees or interest allowing customers to have the ability to make purchases now and pay for them in four equal payments made every fortnight without any interest. There is no interest charged to customers for using this service. However, failure to make their payments will result in a late fee. Customers are required to be over eighteen years of age to use the service. The pay now business consists of the Touch System Platform, which includes services related to fraud protection, regulatory compliance, and data collection and analysis for digital payments.
Expansion
In January 2018, US venture capital fundMatrix Partners announced its intention to invest AU$19.4 million in Afterpay to support its entry into the US retail market, which was worth US$3.8 trillion in total annual turnover, including US$450 billion in online purchases. Afterpay launched in the US in mid-May 2018 with retailers such as Urban Outfitters, with over US$11m of underlying sales was processed in the first full month in June 2018. By August 2019, the company revealed that it had approximately over 2 million active users and 6,500 merchants in the US and announced a strategic partnership with Visa Inc. in the US to help it acquire new merchants by smoothing integration processes.. On May 21st, 2020, the company announced that its US operations had grown to five million active customers in the US. Furthermore, it revealed that in total there were nearly nine million U.S. consumers who had joined the platform since its launch two years prior. In August 2018, Afterpay entered into a sharepurchase agreement to purchase Clearpay, a UK based buy now pay later subsidiary of Thinksmart. Under the agreement, Afterpay acquired 90% of the equity in Clearpay for total consideration of 1 million Afterpay shares. Afterpay has the option to purchase the remaining 10% in any time 5 years subsequent to the purchase. In June 2019, Afterpay announced that it had launched in the UK under the Clearpay brand. 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 customers in the UK over its first 15 weeks.
Criticism and regulation
Some news outlets have called Afterpay a scheme, one stating that it is putting vulnerable young people into vicious cycles of debt that follow them long after they stop spending. Additionally, market commentators suggest whilst buy now pay later payment options are showing significant upside, they may be unable to sustain such growth unless they continue to show they are able to generate larger basket sizes. A report from the Australian Securities and Investments Commission revealed that Afterpay 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. Despite this, 95% of payments have not received a late fee. Following this, in April 2019, legislation was passed to provide ASIC with "Product Intervention Powers". These powers provide ASIC with the authority to intervene where it identifies a risk of significant detriment to retail consumers. 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. 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, then subsequently ordered the appointment of an external auditor at Afterpay's expense to examine its compliance with the AML/CTF regulations.
Competition
Afterpay has a number of competitors including Laybuy, Zip, Klarna, Splitit, Openpay and Sezzle.
