Australia’s Youngest Billionaire
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Good morning! It's Tuesday, September 12th. Buy now, pay later (BNPL) financing options have become widely popular in the e-commerce industry, and that’s thanks to Nick Molnar and his company Afterpay.
Australia’s Youngest Billionaire
In 2015, Nick Molnar founded Afterpay, an Australian company that completely disrupted the fintech industry and popularized the buy now, pay later (BNPL) model.
Afterpay grew rapidly and was purchased by Jack Dorsey’s finance company Square in 2022 for a stunning $29B!
Let’s break down the business model behind Molnar’s multi-billion-dollar creation.
So, What’s Afterpay?
When Molnar attended college, he had quite a lucrative side hustle. His parents owned a jewelry store and Molnar partnered with their supplier to sell excess stock online through eBay.
In the first two years of college, Molnar sold $1.6M worth of jewelry. He eventually scaled beyond eBay with his platform Ice.com, which is currently the largest Australian e-commerce jewelry and watch retailer.
It was through Ice.com that Molnar discovered the billion-dollar concept behind Afterpay. With high-value online purchases for things like jewelry, customers couldn’t always afford to pay in a single installment. By allowing Ice.com users to purchase jewelry through interest-free installments, Molnar saw a significant rise in sales.
Rather than keep this customer conversion trick to himself, Molnar created Afterpay to provide BNPL options to retailers around the world. There were no other companies in Australia that provided similar payment processing solutions, so Afterpay had a wide-open playing field.
The company’s initial focus was on growing its merchant base, which it did surprisingly quickly due to Molnar’s legendary persuasion and sales skills. Today, Afterpay has partnerships with approximately 63,000 retailers, including Lulu Lemon, Forever 21, Urban Outfitters, and Pandora.
Business Model Breakdown
Last year, Square released a financial report that showed Afterpay is still growing strongly and generated $1.18B in annual revenue with $588M in gross profit! This insane profitability comes from 4 revenue streams.
Merchant fees: Retail partners pay 4-6% per transaction, which earned Afterpay $910M in 2021.
Late fees: Installments are due every two weeks. Users who miss an installment pay a $10 fee and then $7 for every following missed payment. This generated $87.2M for Afterpay in 2021.
Pay-per-click advertising: Afterpay’s platform has 11M active users and leverages this audience to sell ad space to their retail partners. The company claims to generate an average of one million referrals a day.
Subsidiaries: Within the first three years, Afterpay acquired e-commerce transaction companies Clearpay and Pagantis. Both subsidiaries use the same business model as Afterpay but haven’t made their earnings public.
How They Win
Afterpay won by providing substantial value to both its consumer base and retail partners.
Retailers can use Afterpay’s platform without using its BNPL options to avoid merchant processing fees, but few do. That’s because retailers who use BNPL on Afterpay have a 20% higher order value on average compared to those who don’t. This payment option also significantly increases buyer conversion rates.
For the average consumer, Afterpay is an easy solution for making big purchases without incurring debt or compounding interest. Though there are late fees, they cap out at 25% of the order value. This does expose Afterpay to quite a bit of risk, but it prevents some of this by blocking future purchases to those who are behind on payments.