Afterpay is one of the fastest growing buy now, pay later firms in the world. Based out of Australia, the fintech has recently expanded into the US and is planning to expand to Canada soon, as well.
Afterpay US CFO Laura Nadler joins us on the podcast to discuss Afterpay’s model and how positioning itself as a partner to retailers has helped it chart a path for growth. Nadler has spent most of her career at traditional financial firms like Visa and we talk about the tailwinds in the business and how COVID is impacting customers and merchants alike.
We also discuss Afterpay’s launch of a new loyalty program.
Moving from Visa to a fintech startup
I joined Afterpay in January. knew I was going to be in for a big change, but I don’t think I anticipated the magnitude of everything that would happen over the past six months. Obviously, it’s magnified because of the pandemic.
One of the things I thought about a lot when I kicked the tires and tried to get a reality check of what it would be like to go from big companies to a younger, faster-growing company — I realized that the times I loved working at big companies were the times when they were undergoing a lot of change. When they weren’t acting like big companies.
I think I found the pace the most challenging. I certainly knew going in that it was going to be intense. And I worked at a pretty fast pace at Visa and my other companies, but there are things that we do at Afterpay in two or three days that would have taken weeks or months at a larger company.
The Afterpay model
Afterpay allows consumers to buy now, take now and pay later with four interest free installments. It’s actually not a traditional loan. We do no credit check, there’s no interest and there’s no way to revolve. Afterpay globally is offered at over 55,000 retailers and brands. And in the US we’ve grown to be over 15,000. To give you a little bit of a flavor, we’ve got Kylie Cosmetics, Finish Line, and Urban Outfitters.
In addition to the benefit to consumers of being able to plan and budget and manage their spend, we think there’s great benefit to retailers who get to grow new customers as well as accelerate their sales. Our shop directory in the US referred 10 million leads to retailers in the month of May and as our network grows, that number will grow as well.
Interacting with shoppers
From a consumer standpoint, you go to your retailer — you can go through our shop directory or go through the retailer’s site. And when you’re checking out, you’re presented with the choice and can choose Afterpay. When you do that, you’ll see what your four equal payments will be, and the app will keep track for you of your payment schedule. We also send you a reminder when when a payment is going to be due, so that you can make sure you plan for that. And for consumers, as long as they’re paying on time, there are no fees and no surprises.
Driving the sector
Some of the tailwinds and trends have accelerated over the past number of months during the global pandemic. I would say one one significant tailwind is the fact that many Millennials and Gen Z consumers don’t want to use credit. They really prefer to be able to use their own money, plan and budget.
We’ve seen research that says about only 29% of millennials use credit for everyday purchases. That rate is even lower for Generation Z. 90% of Afterpay payments are made by consumers using debit cards to make their installment payments. So that is certainly a trend that was at the heart of why Afterpay was founded. And it’s accelerated during the during the COVID period. Customers are really avoiding expensive credit options.
Looking at the the earnings release from my former employer Visa last week, they’ve seen U.S. credit volume decline over 20%. At the same time, debit grew 8% in the in the most recent quarter. So that’s one key trend.
Another trend has been very evident over the past four to six months is the shift of spending online. I think over about 10 years, retail sales has shifted online by about 10 percentage points. In about eight weeks, this spring, it grew another 10 percentage points. So, you know, obviously, a lot of our businesses transacted online.
In-store, we are partnering with Apple Pay and Google Pay. So for a consumer, it basically looks and feels like a contactless transaction using one of those wallets with information from our app to help consumers understand what their four equal payments will be, and to track that payment schedule.
Lender or payments company?
I think we view ourselves as a payment alternative but also as a retail partner and a consumer partner. And what we’re really trying to do is enable consumers to spend responsibly. So I think that that goes beyond being a payment option. And certainly, we build very close partnerships with our retailer partners, supporting them in terms of customer acquisition, growing their business, and increasingly in the future, supporting our in-store businesses as well.
The Afterpay growth story
I think our growth is because both both consumers and retailers value what we do. And we really built the business to be a win-win-win business. In terms of growth in the US, progressive retailers see the benefit of building a business and focusing on Millennials and Gen Z who prefer to budget and to pay over time.
So I think a lot of the growth has been driven by the value we deliver on both sides of the network. And also being able to leverage a lot of the learnings from the Australia business.
The power of the retail network
We see it as a virtuous cycle with with our retailer partners. But certainly the stronger our network becomes, the more referrals and growth our retailers will see. In the US, we have primarily focused on fashion, beauty and lifestyle so far, but certainly new verticals will be an opportunity over time. The Australia business has expanded into new verticals and has really shown that that the model works and is transferable across sectors.
Differentiating in BNPL
I would say our value proposition is purposefully different: we don’t offer traditional loans, don’t require a credit check, and don’t charge interest. We also take it a step further, and if a consumer is late on payment, they actually can’t use Afterpay to buy more until the repayment is made.
So this helps consumers avoid debt and frankly, helps us manage risk as well. So again, a win-win. We really stand for financial wellness and good payment behavior.
New loyalty program
A great example of that is the loyalty program that we recently launched. And I also use this as a differentiator. Our loyalty program actually rewards consumers for on-time payments, which I think is pretty different from most loyalty programs which encourage spend, giving more points for more spending.
In our program, if you qualify — and you qualify by making on-time payments over time — consumers are able to make some different choices including no payment upfront on eligible orders. Loyalty program members are able to reschedule payment due dates up to six times every year. They can buy gift cards from some new brands on the Afterpay network and receive future exclusive offers from unlimited large launches in partnership with retailers.
The credit card companies
We see credit card companies as partners for sure. And an important partner, they are working with us both on accepting consumer payment (our consumers use primarily debit and also credit but that rides on card rails) and our in-store product leverages the card rails. So they’re definitely an important partner to us.
It’s all about driving growth and really continuing to build out the network. And there are three ways that I see for us to drive growth that we will prioritize. The first is continuing to innovate and bring value to consumers and retailers — the loyalty program and in-store are great examples of that.
In addition, we have the opportunity to grow in new markets. We’re very excited Canada is up next. So we’ll be launching in Canada before the end of the year.
And finally, in the US, we continue to have lots of room for growth, both within fashion, beauty and lifestyle and also the new verticals we talked about. So we plan to continue to invest in both consumer and merchant acquisition to accelerate our growth here.