Business Operations Business Models

How Does Afterpay Make Money (Business and Revenue Model)

The Afterpay business model

How Does Afterpay Make Money?
Here’s what you should know:
  • What is Afterpay, and how does Afterpay work?
  • How does Afterpay make money?
  • Merchant Commissions
  • Late Fees
  • Afterpay Partnerships
  • Afterpay’s profit and revenue
  • What is the Afterpay business and revenue model?
  • Afterpay’s funding and valuation

How does Afterpay make money if they offer interest free loans? Here is a full, in-depth, breakdown of their two (2) revenue streams and the different products and services they offer, as well as the Afterpay business model, their year-over-year revenue, Afterpays’ partnerships, and how Afterpay works.

What is Afterpay, and how does Afterpay work?

Afterpay is a financial service that allows consumers to make purchases with retailers without having to pay anything at the time of purchase called “buy now, pay later” (BNPL).

Founded in 2015 by Nick Molnar and Anthony Eisen, Afterpay now has more than 55,400 merchants and 9.9 million customers globally, making them one of the top 50 largest companies in Australia as of 2020.

How it works is: Once a customer downloads the Afterpay app and creates an account, they can then shop from partnering Afterpay retailers and checkout using their Afterpay account. From there, Afterpay offers interest free loans that are to be paid back over a 2 month period through 4 installments due every 2 weeks.

Some of Afterpay’s competitors include KlarnaAffirm, Sezzle, Quadpay, Splitit, and other “buy now, pay later” services.

Afterpay App in Apple App Store | Afterpay Business Model | How Does Afterpay Make Money?
Source: Apple App Store

How does Afterpay make money?

Afterpay has more than 5.6 million active customers in the U.S. out of their 9.9 million customers globally and is adding 20,500 new customers per day in 2020. To add to that, Afterpay also has more than 55,400 merchants globally and facilitates $11.1 billion worth of sales through their “buy now, pay later” loans.

So, how does Afterpay make money off of all of these active merchants, customers, and loans?

Below is a breakdown of Afterpay’s revenue models and how they make money off of each transaction. Including all their revenue streams and partnerships.

Here are the 2 ways of how Afterpay makes money (in 2021):

Afterpay generates revenue for their company in two (2) ways.

#1. Merchant Commissions

In 2020, Afterpay facilitated $11.1 billion worth of sales for more than 55,400 active merchants using their “buy now, pay later” service globally, of which they receive a commission on each transaction.

The way it works is: Once a customer with an Afterpay account purchases something from a partnering Afterpay retailer, Afterpay will then receive a commission on that purchase.

Afterpay Merchant Commissions:

  • between 3% to 6% commission
  • plus a $0.30 transaction fee (per transaction)
How Does Afterpay Make Money? | Afterpay Business Model
Source: Afterpay

#2. Late Fees

Considering Afterpay doesn’t charge their customers’ interest on purchase loans, they make a bulk of their revenue between the late fees and merchant commissions.

Afterpay earned $68.8 million AUD ($51.8 million USD) in revenue from late fees alone in 2020, which is roughly 13.25% of their total revenue of $519.2 million AUD ($399 million USD).

So how does Afterpay make money from late fees? By charging a fee on late payments of more than 7 days.

Afterpay Late Fees:

  • $10 late fee
  • additional $7 if late payment is not paid 7 days after the initial due date*

*Late fees will never exceed 25% of your initial order value or $68 dollars, whichever is less.

Note: 13.25% of Afterpay’s total revenue in 2020 was made up of late fees.

Afterpay Partnerships

Afterpay has a few major partnerships including GAP and Stripe.

Gap and Afterpay Partnership

In November 2020, Afterpay partnered with Gap Inc to bring the “Buy now, Pay later” option to Gap stores.

Gap is the parent company to Old Navy, Banana Republic, and Athleta – all of which will be using Afterpay’s “buy now, pay later” payment option.

Stripe and Afterpay Partnership

In February 2021, Stripe announced their new partnership with Afterpay. This strategic partnership is to integrate Stripes’ payment service with Afterpays’ “Buy now, Pay later” option to merchants using Stripe.

[ Related Article: How Does Stripe Make Money? ]

Afterpay’s profit and revenue

In 2020, Afterpay reported making $519.2 million AUD ($399 million USD).

Note: Because Afterpay is a publicly traded company, under the Securities Exchange Act of 1934, they must file continuous financial filings with the U.S. Securities and Exchange Commission (SEC). You can find all of Afterpay’s publicly released financial reports, including annual reports, through Afterpay’s investor section on their website.

What is the Afterpay business and revenue model?

Afterpay has a few revenue models that they combine within their company, they are:

  • Commission based business model
  • B2B2C (partnerships) business model
  • Fee-for-service (FFS) business model

Afterpay’s funding and valuation

According to Afterpay’s Crunchbase profile, Afterpay has raised $375.5 million over 2 rounds with a valuation of $28.7 billion as of 2021.