Afterpay: Buy Now, Pay Later - [Business Breakdowns, EP. 54]

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Apr 13, 2022

Joe Magyer, an insightful investor, discusses the rapid rise of Afterpay, a buy-now-pay-later pioneer founded in 2015. He explores how Afterpay differentiates itself from traditional credit options and its innovative approach to consumer payments. Magyer highlights the ecosystem's benefits to merchants and consumers alike, and delves into Afterpay's strategic evolution, especially post-acquisition by Block. He also addresses the challenges and growth prospects in today's economic landscape, revealing key insights into consumer behavior trends.

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INSIGHT

Afterpay's Differentiation

Afterpay differentiated itself with its simple, fee-free installment model, unlike competitors who resembled traditional financing.
This simplicity resonated with millennials averse to credit but seeking budgeting tools.

INSIGHT

Afterpay's Ecosystem Economics

Afterpay charges merchants ~4% per transaction, covering processing, financing, and loss rates.
Merchants benefit from increased average order values (20-40%) and lead generation.

ANECDOTE

ASOS and Afterpay

ASOS initially resisted Afterpay due to higher fees, but competitors' adoption and market share loss forced them to accept it.
This shows Afterpay's strong network effect in Australia.

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This is Jesse Pujji and today’s episode is a follow up of last weeks’ Block episode, covering Afterpay the buy-now-pay-later giant. Founded in Sydney Australia in 2015, Afterpay was a rapid success in the buy-now-pay-later market before being acquired by Block for $29bn in 2021.

To breakdown Afterpay, I am joined by investor Joe Magyer. We cover how buy-now-pay-later compares to traditional credit cards, what differentiates Afterpay from direct peers, and how each player of its ecosystem benefits from its offering. Please enjoy this business breakdown of Afterpay.

For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.

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Show Notes

[00:02:52] - [First question] - What is Afterpay and what it does

[00:07:07] - Size and scope of Afterpay today

[00:08:27] - The founding story and their growth being such a young company

[00:12:11] - History of the buy now pay later industry

[00:13:34] - How their payment models tend to work and how these companies make money

[00:16:35] - Unit economics, transaction structure and how money is made

[00:21:44] - How Afterpay drives leads to people via their app and merchant aggregation

[00:23:39] - An early focus on fashion and expanding beyond their core clientele

[00:27:13] - Cost of sales and thoughts on taking more credit risk

[00:31:54] - Losses as a part of cost of sales and interest

[00:33:48] - Unique things that Afterpay can do given their business model that others can’t

[00:35:21] - Growth levers for this business

[00:38:29] - Other major things they’re spending money on and their acquisition by Block

[00:44:28] - The competitive landscape in the BNPL industry

[00:47:54] - Afterpay’s flywheel and how they’ve built it better than others

[00:49:34] - Whether or not regulation plays a role in this space

[00:52:21] - What will have gone right in the next five years to ensure Afterpay’s growth curve

[00:55:01] - What will have happened if Afterpay’s growth doesn’t work out in the future

[00:56:31] - Whether or not interest rate risk could turn south for them

[00:57:30] - Lessons for investors, builders, and where to learn more about Afterpay’s story; Buy Now, Pay Later