AFTERPAY

Nick Molnar was a 23-year-old jewelry entrepreneur selling on eBay when he noticed that millennials were abandoning shopping carts at the payment step. They didn't have credit cards and didn't want them.

Anthony Eisen, a neighbor and experienced finance executive, suggested a solution: let customers pay in four installments, charge nothing to the customer (if they pay on time), and charge the merchant a fee for the increased conversion rate. They launched Afterpay in Australia in 2015.

Merchants loved it because it increased average order values by 20-30%. Customers loved it because it felt like free financing.

Afterpay expanded to the US in 2018 and the UK in 2019. By 2021, they had 16 million active users globally.

Afterpay makes money from merchant fees (typically 4-6% of the transaction value plus a fixed fee). Merchants pay because Afterpay customers spend more and complete more purchases.

Customers pay nothing if they make their four installments on time. If they miss a payment, they're charged a late fee (capped at 25% of the original order).

Afterpay takes the credit risk — they pay the merchant upfront and collect from the customer over time. The model works because default rates are low (customers can't use the service if they miss payments) and merchant fees are high.

Afterpay's core product splits any purchase into four interest-free installments paid every two weeks. The Afterpay app lets users browse participating merchants and manage payments.

In-store payments allow BNPL at physical retail locations. Afterpay's merchant platform provides analytics and marketing tools.

After the Block acquisition, integration with Cash App expanded the user base significantly.

Afterpay grew by targeting fashion and beauty retailers first — categories where impulse purchases and higher average order values made the merchant fee worth paying. They expanded to bigger retailers (Urban Outfitters, Anthropologie, Forever 21), then mainstream retailers.

The US expansion was the biggest growth lever — the American market for BNPL was massive and Afterpay got there before Klarna and Affirm could establish dominance. Social media marketing targeted millennials and Gen Z directly.

Regulation is the biggest risk. Governments in Australia, the UK, and the US have scrutinized BNPL products, arguing they encourage overspending and lack consumer protections.

Late fees and debt accumulation among young consumers drew criticism. Competition from Klarna, Affirm, PayPal Pay in 4, and Apple Pay Later has intensified dramatically.

The $29 billion acquisition by Block also created integration challenges — merging Afterpay into Cash App and Square's ecosystem is complex.

Matrix Partners, Tencent, Coatue Management, DST Global, and Tiger Global were key investors before the Block acquisition. The Block (Square) acquisition for $29 billion in stock was announced in August 2021 and completed in January 2022.

Jack Dorsey's conviction in BNPL was the driving force behind the acquisition.