“It’s simple… Shop Now. Take now. Pay it in 4!” reads the Instagram bio of Australian financial tech company Afterpay Touch Group, commonly known as “Afterpay” whose buy now, pay later service has found success with online shoppers. Observing the company’s Insta feed with images of stylish, gorgeous people, the occasional funny meme (“Can we have a moment of silence for all those good hair days when no one saw you?”) and cool product shots, it’s obvious that Afterpay adores the young demographic. In fact, millennials make up 75 percent of Afterpay’s customer base.
The love seems to be mutual and why wouldn’t it be? Millennial shoppers – raised in a culture of instant gratification and accused of being impulsive – receive items right away without having to pay the full price upfront. Instead, they pay a quarter of the purchase amount initially and then pay the remainder off in equal fortnightly instalments. If the customer pays all instalments on time, they pay nothing more than the purchase price. And unlike credit cards, customers aren’t charged any interest.
In addition, there are also limits applied by Afterpay so that a customer can’t splash out first time and rack up lots of debt that they can’t pay back. Afterpay then slowly increases their spending limit to a maximum of $2000 – but this is only after a customer establishes a credible track record of repayments.
It’s not just customers who love Afterpay. Retailers are embracing the ‘take now, pay later’ service too. It makes their products – particularly higher priced items – more attractive to buyers, helps clear stock and enables them to compete in the marketplace. It’s proving so popular in fact, that many opportunistic fashion businesses and lifestyle brands are clamouring to jump on board; from fast fashion brands such as Boohoo and Princess Polly to conscious businesses such as Nobody Denim and Proof Eyewear, all in the hopes of “serving their customers better”, making sales and increasing their bottom line.
“Customers love it because it’s a budgeting tool for them and they spread their payments,” explains CEO Nick Molnar in an interview with Business News Australia. “Retailers love it because customers buy more.” It’s a win-win scenario for both parties according to Molnar.
So how exactly does Afterpay make its money?
Afterpay doesn’t charge customers any fees for using the service. Instead, it makes its revenue in two ways: by charging retailers merchant fees for use of the service and charging customers late fees when they miss an instalment. In the 2016-2017 fiscal year, the company generated roughly $23 million in fees from retailers and an additional $6.1 million in late fees. Some customers couldn’t make their repayments, and as a result, $3.3 million in bad debt was written off.
Nevertheless, the business model is sound and after seeing positive financial results in the Australian and New Zealand markets, Afterpay entered the lucrative $3.5 trillion US retail market in mid-May, strategically partnering with globally-recognised US venture capital firm Matrix Partners who invested US$15 million (approximately A$18.9 million) to assist with the expansion. Over 400 US-based retailers have now signed on, including one of the largest fashion and lifestyle retailers in the US, URBN network, which operate popular millennial brands Anthropologie, Free People and Urban Outfitters.
With such rapid growth, it’s hard to believe that this company is still just a startup. Co-founded in 2014 by a now 28-year-old Molnar (who was also named one of Forbes’ 30 Under 30 last year) the company went public just two years after launching, sits on the ASX200 with other leading Aussie companies, and has a market value of A $1.7 billion – all in less than four years.
With more than 15,000 retailers on board and two million customers registered for the service, the company is on track to process $2 billion in sales and make $80 million in revenue in this year alone.
The Australian company is kicking many business goals and leading in the “fintech” sector, but the question remains: how does this service impact the sustainability movement?
The benefits of Afterpay
There are some within the conscious community who sing praises about this service, particularly people who wish to shop ethically-produced goods but don’t have the funds to cover the cost of an item upfront. Prices of ethical goods typically run higher than unethically produced ones due to the higher cost of inputs (living wages, ethical certifications, organic fabrics etc) so Afterpay allows conscious customers to shop these items by dismantling the upfront cost barrier. For example, if an ethically-manufactured sustainably-designed dress costs $250, a customer need only pay a fraction of the cost upfront, take it home and pay the remainder in fortnightly instalments later. Viewed in this way, Afterpay assists conscious consumers to buy otherwise out-of-reach ethical designer brands.
“When I first transitioned into a conscious consumer I was very wary of the prices,” shares Kat Vargas, slow fashion advocate and blogger behind Finding Katnis. “What helped me take the plunge was this idea that I could pay half for an item, wait to receive it, and then pay for the balance later.” She explains that her first very intentional “green” purchse was enabled by Afterpay. “I ended up falling madly in love with the brand even though their prices were nearly triple what I was used to, and once they removed Afterpay I continued to purchase from them knowing my money was well invested.”
Another fan of the service, Adrienne Smith, admits she hasn’t used the service to buy any ethical goods, but plans to. “I’ve only just learned about how damaging fast fashion is so I haven’t bought anything yet, however, I regularly use Afterpay for other things and it definitely makes items more affordable, so if it’s available I’d guarantee I’d used it for eco-fashion.” Smith particularly likes that Afterpay sends payment reminders and that the service declines new purchases if you have too many outstanding orders. “I don’t think [Afterpay] encourages overspending because you can log in and see how much you own and when payments are coming out. They show you the payment plan before you commit.”
Tahnee Barnes, founder of the non-profit Australian conservation organisation End Extinction International is another responsible user: “I have used Afterpay once, and only because the brand was certified sustainable, ethical and eco-friendly. I have committed to supporting these kinds of companies, and so will only use Afterpay when treating myself on a rare occasion to one of their pieces.”
The service benefits conscious entrepreneurs too. Sydney-based sustainable fashion designer Eva Cassis who launched her namesake label in 2012 is one such business owner who recently signed on with the digital payments platform hoping to increase online sales and help with small business cash flow management.
“I’m hoping it helps ethical fashion by making price point less of a factor and helping brands like mine compete,” the Australian designer explains. “It doesn’t promote old-fashioned saving up for something special but I’m hoping it encourages people to buy better by giving the option to pay off slowly.”
After researching the company’s terms and conditions and using the service herself, Cassis was convinced to sign her business on.
“I personally used Afterpay for the first time a couple of weeks ago and really liked it,” she explains. “We needed a new toddler proof rug for the living room and I was able to get a beautiful eco rug, natural and better quality than I was planning because I could keep some emergency cash until my next payment.”
Cassis acknowledges she’s a sensible shopper and recognises that the service may cause issues for some. “I’m hoping that other people also use it as a tool to buy better not just be enticed to buy more things they don’t need.”
The problems with Afterpay
That Afterpay encourages impulse purchasing and overconsumption is a common concern shared by many in the sustainability community. Australians throw out 6,000 kilograms (six tonnes) of clothing and textiles every 10 minutes, and with three-quarters of Australian adults admitting to having thrown away clothes at some point in the past year, and a quarter of millennials throwing away an item of clothing after wearing it just once, these concerns are valid.
A quarter of millennials (24%) have thrown away clothes because they are bored of wearing them.” – Australian YouGov Omnibus research 2017
Another concern is that the take now, pay later service normalises debt by encouraging people, and particularly young people, to live beyond their means.
South Australian Council of Social Services chief executive, Ross Womersley, believes that Afterpay is just “another way of encouraging us to commit to money we don’t actually have in our pockets”. He tells The Guardian:
“That’s fine if we’re in a situation where we have the income flow to meet whatever payments we’re obliged to … but it’s easy to picture a situation where someone loses track of their commitments and over-burdens themselves.”
Danielle Egan, founder of Australian vegan nail polish brand Sienna Byron Bay doesn’t offer Afterpay for this reason. “It may lessen sales slightly but at least I’m not contributing to national debt.”
Egan shares a story of when an “Instafamous” woman tells her over drinks, “it’s not your responsibility to watch your customer’s spending”. She is dumbfounded.
“Of course it is!” she declares in her Instagram message to EWP. “I make these products to contribute to the good in the world, not contribute to global debt. I want people to buy responsibly and I want them to enjoy it and treasure it and not feel sick to their stomachs that they’ll be paying it off for a month.”
When the woman proceeds to share, “I have a friend with an $800 Afterpay debt but she can’t afford nappies for her kid” it only serves to cement Egan’s position and why she won’t be offering the service. “I want to sleep at night.”
Australia’s total household debt is one of the highest in the world, reaching $2.466 trillion. American consumer debt is even higher, expected to reach a record high of $4 trillion by the end of this year.
With debt levels soaring and tonnes of clothing and general waste dumped in landfills, the concerns around our ‘must have it now’ culture are legitimate.
The question remains: If you want to buy a consumer item now, but can only pay later – do you really need it?
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