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Overview and Origin

Afterpay

When was the company incorporated?

• Afterpay Limited was incorporated in 2017 and is based in Melbourne, Australia. Source: Yahoo Finance

Who are the founders of the company?

• Afterpay's co-founders are Nick Molnar and Anthony Eisen. In June 2017, Afterpay merged with Touchcorp to become Afterpay Touch. The former provides pay later for retail while the latter provided pay later for retail, mobility and health services such as in the dental and optical space.

How did the idea for the company come about?

• Molnar’s theory: "Millennials have a total aversion to credit cards because they can lead to compounding debt." Source: Forbes

• Afterpay is a unique service which was founded to champion the customer's best interests when it comes to making retail purchases. It is the leader in "Buy Now, Pay Later" payments, allowing shoppers to receive products immediately and pay in four simple installments.

How is the company funded? How much funding have they received?

• In 2015, Afterpay commenced operations and listed on the Australian exchanges via an IPO raising $25 million in mid-2016 at a share price of $1. Source: Afterlinks
• Afterpay's share price has soared by over 1,000% in the past six months from $8 in March to $86.68 at close of business yesterday. Source: Bloomberg
• Afterpay received a $200 million private placement and proposed strategic partnership with Coatue Management, a leading US based technology investor. Source: PR Newswire

Business Activities:

What specific financial problem is the company or project trying to solve?

• Millennials and Gen Z shoppers prefer a way to pay that allows them to pay over time, without incurring revolving debt, paying interest or fees — especially when buying fashion and beauty.
• Afterpay was created to help customers budget for life's little extras without needing to enter into a traditional loan or credit product.

Who is the company's intended customer? Is there any information about the market size of this set of customers? What solution does this company offer that their competitors do not or cannot offer? What is the unfair advantage they utilize?

• Consumer preference has shifted toward using debit over credit.
• Unlike other payment products, Afterpay doesn't require customers to enter into a loan or credit facility or pay any upfront fees or interest to Afterpay. Unlike some typical financial businesses, Afterpay relies and only benefits from customers not going into default, paying off their orders in full and on time.
• Afterpay is geared towards financially healthy customers with responsible spending patterns and customer loyalty.

Which technologies are they currently using, and how are they implementing them?

• Prior to each and every order being approved, Afterpay employs their proprietary fraud and repayment capability check. They apply strict personal order and account limits - which start off low and only increases if repayment history with Afterpay is positive.
• Afterpay only approves one order at a time and if a payment is not made on any due date, customers are not able to make any future purchases with Afterpay.
• Afterpay currently communicates with their customers regularly via SMS and e-mail in advance of payments becoming due.

Landscape:

What domain of the financial industry is the company in?

• Afterpay is in the Payments/Billing domain of the financial industry.

What have been the major trends and innovations of this domain over the last 5-10 years?

This isn't your Grandma's installment payments! Welcome to 2020! Welcome to Afterpay!

• Layaway is a purchasing method that allows you to put a deposit on an item, make payments towards paying it off and allows you to pick up the item once you have paid off the entire balance.
• The transition away from layaway plans into "buy now, pay later" plans allow individuals to take home the item before they are done making payments. With many people navigating tighter budgets, especially heading into the Holiday season, "buy now, pay later" is increasingly allowing shoppers to complete their transactions both in-store and online with the convenience of dividing their total into smaller payments.

What are the other major companies in this domain?

• Other major companies in this domain include Klarna, Affirm, PayPal's "Pay in 4" service, Four, Sezzle, Quadpay. For select new products that are sold and shipped by Amazon.com, Amazon will let you divide your payment into 5 installments.

Results

What has been the business impact of this company so far?

• Afterpay is currently available in Australia, Canada, New Zealand, the United States and the United Kingdom, where it is known as Clearpay.
• Afterpay is offered by more than 63,000 of the world's favorite retailers. The total number of customers that have signed up to Afterpay in the US now exceeds 13 million.
• Afterpay exceeded 2 billion of Global sales in the month of November 2020 with the US leading the way - more than doubling the 1 billion of underlying sales in November 2019. Source: ASX Announcement

What are some of the core metrics that companies in this domain use to measure success? How is your company performing, based on these metrics?

How is your company performing relative to competitors in the same domain?

• An average of 17,000 new customers were added to Afterpay's platform each day during the 2020 financial year - which increased to 20,500 new customers per day during the fourth quarter. Source: Australian Financial Review
• Customers are transacting more frequently the longer they remain on the platform with ~ 90% of underlying monthly sales coming from repeat customers. Source: PR Newswire

Recommendations

If you were to advise the company, what products or services would you suggest they offer?

• Other products that Afterpay can improve upon to have an advantage over their competitors would is improving their Pulse Rewards program. Klarna, for example, has Vibe, which allows shoppers to earn "vibes" when they shop with Klarna. Shoppers earn 1 vibe for every $1 spent, no matter the store, which they can then redeem for gift cards. Source: Digital Magazine

• While Afterpay already has Pulse Rewards where shoppers are rewarded for having a streak of timely payments. Source: Pulse They can add a component to their rewards program in the form of loyalty points where shoppers can accumulate personalized dicounts and points that they can redeem for higher-valued gift cards they can use at any of the many Retailers Afterpay is partnered with.

Why do you think that offering this product or service would benefit the company?

• While the current Pulse rewards program is marketed as it is "rewarding responsible spending", the current program seems more of an attempt of trying to recover money rather than rewarding all the customers for using the service.

• Offering an improved, more inclusive, loyalty program service would give Afterpay benefit the company because it would provide shoppers with a good incentive to use Afterpay over other buy now, pay later providers. Since paying in four installments is now offered by many providers, it is important that companies offer perks to incentivize customer loyalty.

What technologies would this additional product or service utilize?

• This additional service can utilize AI and Machine Learning to improve customer loyalty.

Why are these technologies appropriate for your solution?

• These technologies are appropriate for the aforementioned solution because loyalty programs would allow the company to record data on a shopper's behavior. Machine learning algorithms can look at the shopper's previous buying patters in order to make suggestions and potentially even predict their future actions and/or behaviors.

Source: Afterpay