Afterpay Limited (ASX:APT)
Afterpay (ASX:APT) is a modern-day instalment payment service that enables consumers to buy products on a ’buy now, receive now, pay later’ basis. Afterpay was founded in Australia in 2014 and has since launched its Afterpay service in New Zealand, the United States and the United Kingdom.
The Afterpay service is offered as a payment option by participating merchants either online or instore. Customers who choose to purchase products using Afterpay receive the purchased products upfront and repay the purchase price (or order value) in four equal instalment payments (every two weeks) to Afterpay. Afterpay pays the merchant for the purchased products upfront.
Participating merchants pay a fee to Afterpay for using the Afterpay service. Merchant fees are structured as a percentage of the order value or purchase price, and in most circumstances, a fixed fee per transaction is also applied. The majority of Afterpay’s income is derived from merchants rather than customers.
Afterpay is an alternative to traditional credit. Afterpay is a no cost service to the customer if instalment payments are made on time. Responsible spending rules and consumer protections are built into the service – these rules help ensure customers never revolve in debt, no exceptions. In circumstances where the customer does not pay their instalment payments on time, their service is immediately suspended, and late payment fees can be applied. Late payment fees are fixed, capped and do not accumulate or compound over time.
The Afterpay service has gained significant popularity in the Australian and New Zealand markets with both customers and Afterpay’s merchant partners. Afterpay launched in the US in May 2018 and has achieved rapid growth. Afterpay also recently launched in the UK under the Clearpay brand.