Afterpay is a popular payment platform that allows customers to make purchases and pay for them in installments. The platform is particularly popular among millennial and Gen Z shoppers, who prefer to use flexible payment methods rather than traditional credit cards.
The question that often arises is: how does Afterpay make money? In this article, we will delve deep into the business model of Afterpay and understand the different ways in which it generates revenue.
These are Some Ways through which Afterpay Earns:
Merchant Fees
Afterpay generates a significant portion of its revenue from merchant fees. Merchants who use the platform are required to pay a percentage of the sale value to Afterpay as a processing fee. The fee ranges between 4% to 6%, depending on the merchant's sales volume and the country of operation. Merchants are willing to pay these fees as it helps them attract customers who prefer to pay in installments. Moreover, It also earns with the Short Term Loans as they have high-interest rates.
Late Fees
Late fees are another way in which Afterpay makes money. If a customer fails to make a payment on time, they are charged a late fee. The late fee is usually around $10 and is capped at 25% of the order value. Late fees are an important source of revenue for Afterpay, as they incentivize customers to make payments on time.
Interest in Late Payments
In addition to late fees, Afterpay also charges interest on late payments. The interest rate varies depending on the country of operation but is typically around 1% per month. This interest is charged on the outstanding balance, including the late fee.
Foreign Exchange Fees
Afterpay also generates revenue through foreign exchange fees. When a customer makes a purchase in a different currency than the one in which their Afterpay account is denominated, a foreign exchange fee is charged. The fee varies depending on the country of operation but is typically around 4%.
Referral Fees
Afterpay also generates revenue through referral fees. When a customer makes a purchase on a merchant's website through Afterpay, the platform earns a commission. This commission is usually a percentage of the sale value and is paid by the merchant to Afterpay. This commission is a form of a referral fee.
Transaction Fees
Afterpay charges transaction fees to merchants for each transaction that takes place on the platform. The transaction fee is usually a fixed amount and varies depending on the country of operation. This fee covers the cost of processing the transaction.
Interchange Fees
Interchange fees are charged to merchants by the card networks (Visa, Mastercard, etc.) for processing payments. Afterpay also earns a portion of this fee as it is considered a payment processor. The interchange fee varies depending on the country of operation and the type of card used.
Financing Fees
Afterpay also generates revenue through financing fees. These fees are charged to customers who opt for longer repayment periods. The financing fee is a fixed amount or a percentage of the sale value and is charged in addition to the interest rate.
Investment Income
Afterpay generates investment income by Manifesting the Money it receives from customers and merchants. The platform invests in low-risk, short-term investments such as government bonds and money market funds. This investment income is a small but important source of revenue for the company.
Conclusion
Afterpay generates revenue through various sources, including merchant fees, late fees, interest on late payments, foreign exchange fees, referral fees, transaction fees, interchange fees, financing fees, and investment income. These revenue streams have enabled the platform to become one of the most successful payment platforms globally.