What is Afterpay and How Does it Work?

Jul 16th, 2018 Technology, Trends

Afterpay: Australian for Layaway

Afterpay is basically like online layaway except sellers get their entire payment right away and buyers don't have to wait until their items are paid off to enjoy them. Win-Win. The Austrailian tech company allows customers to pay for items in installments without fees or interest; meanwhile, retailers get paid in full.

How does Afterpay work?

  • Retailers add Afterpay to their checkout process online like they would with other payment options like credit cards or PayPal.
  • Customers will select Afterpay at checkout (they do not need to be previously registered) and complete signup using their payment information.
  • The customer then pays the first installment of 25% to Afterpay, and the seller receives the payment in full from Afterpay (minus a commission fee).
  • Customers pay off their balance in installments to Afterpay, not the seller. If the payments are made on time, there are no fees. If a payment is missed, a $10 fee is charged. Not a bad deal.
  • Which businesses are using Afterpay?

    I first heard of Afterpay from artists on Instagram that were promoting it as a new method of payment, but a large majority of online retailers currently offering it are fashion brands like Urban Outfitters and Anthropologie, and health and beauty stores. Afterpay processes more than 25% of all online fashion/beauty transactions. 

    Some brands are using the new method of payment as a marketing opportunity.

    Princess Polly’s home page got a refresh with “Buy Now, Pay Later.”











    Lorna Jane featured a section when you land on their site, “Buy now. Sweat Now. Pay Later.”











    How much does Afterpay cost?

    For retailers:
    Retailers will pay 30 cents per transaction, plus a 4-6% commission fee. The larger the transaction, the lower the percentage fee. This is relatively high compared to other payment methods. For example PayPal processing fees are 2.9% + 30 cents for each transaction and major credit cards are usually less than 3%.

    For consumers:
    It costs nothing to use Afterpay as a consumer. All you need is a credit or debit card, and you'll only pay fees if payments are made late.

    Should my business accept Afterpay?

    It allows customers to follow through with a purchase that they may have abandoned before, possibly spending more than they normally would on higher ticket items (there is a $35 minimum) or bulk items. This may come in handy around the holidays.

    “The service is appealing to retailers and brands as it helps to increase conversion rates and incremental sales by 20-30%." -Nick Molnar, Founder and CEO of Afterpay

    The commission costs are relatively high, so you'll need to look at your ROI to decide if it makes sense for your business.


    Have questions about selling online? Contact us. 

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