How Does Afterpay Make Money? Dissecting Its Business Model

Executive Summary:

Afterpay is a company that allows customers to pay for items over the course of 4 installments. It works together with over 55,000 online retailers that have adopted its payment options.

Afterpay makes money via fixed and variable merchant fees, late payment fees, interchange fees, as well as cost-per-click advertising.

Founded in 2014 and headquartered in Sydney, Afterpay has grown to become one of the world’s leading players in the ‘Buy Now, Pay Later’ space. In August 2021, Square announced it would acquire Afterpay for US$29 billion.

What Is Afterpay?

Afterpay is a FinTech company that offers ‘Buy Now, Pay Later’ (BNPL) solutions to online shoppers. Customers can pay for their items over the course of multiple installments.

Afterpay works together with some of the world’s biggest online retailers, including ASOS, Pandora, The RealReal, Lululemon, Forever 21, and hundreds more.

From a customer’s perspective, this is how the service works: when checking out at the online store, you simply select Afterpay as your preferred method of payment.

Then, you will be prompted to pay for your items in 4 interest-free installments. Afterpay does not charge any interest nor additional fees (as long as the items are paid on time).

If you’re late for a payment, Afterpay will block you from making additional purchases through its platform. Late fees may, depending on your country of residence, be applied as well.

Using Afterpay allows consumers to order items free of charge and test them out first. Should they not be of their liking, they can simply send them back to the retailer.

Apart from shopping directly on the merchant’s site, customers can also find deals on Afterpay’s own app, which offers discounts of up to 40 percent.

Afterpay is available in Australia, Canada, France, New Zealand, Spain, the United Kingdom, and the United States.

Users can access Afterpay’s platform via the company’s website as well as its mobile phone application (available on Android and iOS devices).

A Short History of Afterpay

Afterpay, headquartered in Sydney, Australia, was founded in 2014 by Nick Molnar and Anthony Eisen.

Molnar, although being 24 years at the time of launching Afterpay, already had his fair share of experience as an entrepreneur.

When he was 14, he began to import headphones from Japan to sell them online. While this particular business didn’t go anywhere, it nonetheless proved to be a valuable lesson.

As a teenager, he, furthermore, worked in a Sydney-based jewelry store called St Michel Internationale, which was owned by his parents Michele and Ron Molnar.

During his first year of university (Molnar attended the University of Sydney on a rugby scholarship studying finance), he began selling excess stock from the shop’s supplier through eBay.

Molnar, from an early age, was very good at persuading people. So, before he started selling jewelry, he convinced his father to fly with him to the United States and meet the shop’s supplier. He then, again, persuaded the supplier to work together with him and become his sole partner.

By the second year of university, Molnar’s eBay shop was selling $1.6 million worth of jewelry. Despite his early business success, he always had the desire to someday work in investment banking.

When Molnar graduated from the University of Sydney, he did just that. He began his career as an investment analyst at M. H. Carnegie & Co., a private equity and venture capital firm out of Sydney.

Mark Carnegie, the firm’s managing director, wasn’t too fond of him working as an investment banker, either.

One day, he took Molnar aside and told him to pursue his business (that was earning him fivefold than what he was making as a banker already). If it wouldn’t work out, he could simply come back and work for Carnegie again.

That little pep talk was all the encouragement that Molnar needed to fully focus on his online business. Just a few months after going full-time, Molnar was able to close a deal with one of North America’s biggest online jewelry retailers,, to launch Ice Australia. is still running to this date and employs over 10 people who manage the business. Molnar, on the other hand, already moved on. But let’s rewind back to 2012 again, shall we?

At the time, Mark Carnegie wasn’t the only person who saw first-hand the ambition and determination that Molnar possessed. Molnar was spending days and nights in his little home office building up Ice.

Just a few street corners away from him, a man named Anthony Eisen was spending his nights handling business matters for Guinness Peat Group as their Chief Investment Officer. Whenever he looked outside his office window, he’d notice the young Molnar pulling in long hours alongside him.

Eventually, when he saw Molnar walking across the street, he simply approached him to figure out what he was working on. That little conversation sparked a friendship between the two and would ultimately be the catalyst for launching Afterpay.

In 2014, when they started working on conceptualizing Afterpay, ‘Buy Now, Pay Later’ businesses were already sprouting up across the globe. Startups like Affirm or Klarna were able to garner huge valuations while raising tens of millions in the process.

Meanwhile, Australia did not possess any startup that was working on a similar solution, which essentially made it a wide-open playing field. Afterpay worked together with Touchcorp Limited, a provider of payment technology, to develop tools to process transactions and assess fraud. Touchcorp, as a result of its work, was granted a 33 percent stake in Afterpay.

Another advantage that the team possessed early on was that it already had its first merchant partner signed up. Afterpay launched in early 2015. One of its very first partners? Molnar’s Ice Online.

afterpay company history
Wayback Machine

In the next few months, the team’s sole focus was to grow its merchant base. Being one of the first to market allowed Afterpay to sign those merchants up at a rapid pace. Many have said that Molnar’s persuasion and sales skills have been instrumental in growing Afterpay’s merchant pool.

Despite its intensive growth, it was rather surprising when Afterpay announced that it would go public – which the company ultimately did in May 2016. The IPO valued Afterpay at $150 million while allowing it to raise another $25 million.

A year after the IPO, in February 2017, Afterpay announced that it would merge with Touchcorp, one of its largest shareholders. The merger allowed Afterpay to combine its extensive retail network with Touchcorp’s sophisticated payment technology products.

The newly formed entity, Afterpay Touchcorp (trading under the APT ticker on the Australian stock exchange), immediately became the de-facto leader in the Australian BNPL space.

With the added resources, Afterpay continued to expand its reach. It launched its first iPhone app in May 2017 while expanding its business into New Zealand, its first foreign market. That same year, it celebrated the firm’s one-millionth customer – just 2 years after launching.

Another significant growth channel for the company became testimonials. Celebrities like Kylie Jenner would regularly tweet about the service, which in turn attracted plenty of new customers.

It used that clout to snatch up other rivals in the process. Afterpay entered the U.K. market in 2018 by acquiring ClearPay Finance, a ‘Buy Now, Pay Later’ service developed by ThinkSmart Limited.

Not everything was always going according to plan, though. In 2018, the company started to experience its first series of headwinds. A field report by Ownership Matters, an Australian governance firm, had revealed that the firm masked itself as a minor and bought $300 worth of liquor through Afterpay’s platform.

In 2019, Afterpay was caught breaching anti-money laundering laws by failing to undergo proper identity checks up until 2018. As a result, the company invested millions into upping its compliance with those laws. A report ordered by the Australian Transaction Reports and Analysis Centre (AUSTRAC) confirmed compliance soon after.

Just like other BNPL services, including Affirm or Splitit, Afterpay has been subject to criticism from consumer rights groups which claim that these services encourage people into debt they cannot repay while, at the same time, proposing to regulate them.

Despite those setbacks, Afterpay has continued to widen its presence – both in its home market as well as abroad. The coronavirus pandemic, while damning for many companies, has allowed Afterpay to exponentially grow its business as customers flock to buying items online instead of stores.

The company, furthermore, announced its biggest acquisition to date when it bought Pagantis, a ‘Buy Now, Pay Later’ service out of Spain, for $82 million.

Even a temporary change in leadership (Molnar was temporarily assigned the role of Chief Revenue Officer but has since become the CEO of Afterpay’s North America business) nor increased competition (PayPal, in August 2020, announced it would offer a ‘Buy Now, Pay Later’ service itself) has stopped Afterpay from continuing to grow.

After months of continuous product expansion and customer growth, American FinTech giant Square surprisingly announced in August that it intends to acquire Afterpay for US$29 billion in an all-stock deal.

Both firms leveraged the acquisition to strengthen Afterpay’s positioning in the United States. In November, for instance, Afterpay announced that it would offer instalments for various subscription services such as Boxycharm or Fabletics.

It also announced partnerships with leading retailers including Calvin Klein, Nordstrom, Tommy Hilfiger, or even leading delivery services such as DoorDash.

The two firms would realize some synergies as well. All Square (now Block Inc) merchants would automatically get access to Afterpay as a payment option for their customers.

Nevertheless, competition began to severely ramp up. In May 2022, both Apple and National Australia Bank (NAB) announced that they would launch BNPL solutions.

Today, Afterpay counts over 100,000 merchant partners, which are serving a total of 16 million customers.

How Does Afterpay Make Money?

Afterpay makes money via the fees that it charges merchants, late payment fees, interchange fees, and cost-per-click advertising.

The company, furthermore, generates revenue from its foreign subsidiaries, including Clearpay, which it operates in the United Kingdom.

The following section will only focus on the income that can be directly attributed to Afterpay since its foreign subsidiaries operate on similar monetization patterns.

So, without further ado, let’s take a look at how Afterpay makes money.

Merchant Fees

As previously stated, Afterpay does not charge customers any interest or additional fees to be able to pay via installments.

Instead, its merchant partners are the ones that pay the company for every transaction facilitated through its payment gateway.

Afterpay charges merchants a 30-cent flat fee on every transaction. On top of that, merchants pay a variable fee that ranges anywhere between 4 to 6 percent. The fee is in line with competing services like Quadpay or Sezzle.

The actual percentage is dependent on the value and volume a merchant is able to sell. The more a merchant sells, the lower are its fees.

There are a few reasons why merchants would want to offer a ‘Buy Now, Pay Later’ option on their platform. First, Afterpay takes on the risk of payment default while conducting the debt collection process, if necessary.

Second, Afterpay claims that its installment options lead to an increase in average order value of 10 to 20 percent.

Lastly, having a well-known payment solution like Afterpay oftentimes leads to more customers and higher conversion rates. These customers, furthermore, tend to return fewer products on average.

Merchant fees make up the vast majority of the revenue that Afterpay (and its foreign subsidiaries) generates.

The business model of Afterpay is thus predicated on expanding its merchant base to provide consumers with as many options as possible.

And the more customers it attracts, the likelier merchants are to work together with the platform. It not only enhances Afterpay’s negotiation power with partners but also allows the company to monetize them in other ways – like the advertising revenue stream detailed in the coming section.

Cost Per Click Advertising

In August 2021, Afterpay introduced in-app advertising that allows its merchant partners to promote their own deals.

The ads will be shown within Afterpay’s very own Android and iOS apps. The company generates revenue through cost-per-click (CPC) advertising.

That means that the merchant pays Afterpay a small fee whenever a customer clicks on one of the promoted placements.

With millions of downloads, advertising on Afterpay’s app can certainly be a highly lucrative option for many merchants that seek to boost sales.

Afterpay has, furthermore, introduced cashback rewards for selected offers. Now, those rewards are not just handed out for free.

Instead, Afterpay likely receives a referral fee for every offer activation, which is paid by the firm providing that offer.

Late Payment Fees

The second source of income comes from late payment fees. These are paid whenever a customer does not settle his or her payment on time. The due date is normally defined in the invoice.  

If a payment is not made on time, then Afterpay will first try and automatically deduct the installment from the customer’s debit or credit card.

The company applies an initial late fee of $10. A further $7 charge is applied whenever the invoice remains unpaid within the 7 days after.

For orders below $40, late payment fees can only reach $10. Every order above the $40 threshold can incur fees of up to $68.

Revenue from late payment fees as a percentage of the firm’s overall revenue has continued to decline in the past years.

Interchange Fees

In March 2021, Afterpay launched a digital debit card. Prior to the launch, members needed to scan a barcode on their phone to conduct in-store purchases.

The card itself was launched in partnership with Mastercard. One of the biggest ways with which debit and credit cards generate revenue is through so-called interchange fees.

Those fees, which are normally around one percent, are applied whenever you pay using the card. The fee is paid by the merchant accepting the payment.

In the case of Afterpay, it can be assumed that the interchange revenue is then split with Mastercard, which provides the underlying payment network.

Afterpay strategy is to actually become a viable money management tool for its customers. To that extent, it has launched Money by Afterpay, which provides users with insights about their daily and weekly spend, allows them to set saving goals, and much more.

Afterpay, once it collects more data points about the user’s financial situation and spending habits, could launch additional products that it could monetize. For example, Afterpay could begin to recommend various insurance products or even enable crypto and stock trading.

Afterpay Funding, Valuation & Revenue

According to Crunchbase, Afterpay has raised a total of US$448.7 million across 3 rounds of funding.

Investors include Coatue, Tencent, as well as Mitsubishi. The company raised another $25 million during its stock market debut in June 2017.

At the time of IPO, Afterpay was valued at $1.6 billion. As of the time of writing, the firm’s valuation has risen to US$29 billion (i.e., the price that Square was willing to pay to acquire the company).

For the fiscal year 2021, Afterpay generated revenues of AU$924.7 million, up 78 percent from the year prior. Meanwhile, the company lost a whopping AU$159.4 million over the same timespan.

Hi folks, Viktor checking in! Years of experience in various tech-related roles have led me to start this blog, which I hope provides you with as much enjoyment to read as I have writing the content.