We recently spoke with Ben Pressley, Executive Vice President of Sales, Operations and Strategy for Afterpay, about how consumers are using the service, the growing market for installment payments, and what it means for retailers.
How does Afterpay work?
Afterpay is a global installment payment platform that started around four years ago in Australia, when one of our founders, Nick Molnar, recognized the interest of the rising generation, especially millennials, and Generation Z, who didn’t really use credit cards.
Currently, Afterpay has approximately 43,000 retailers around the world that offer the service. In the United States, it’s over 9,000 retailers. There are over 3.6 million consumers actively using Afterpay in the United States, and that’s more than double the world.
Users pay every two weeks in four installments for their purchases, and then the retailer covers all associated costs. This means that there is no interest or recurring charge for the consumer. Users love the product, especially those who don’t use a credit card, which is a very large percentage of the population. And retailers love it too, because they see conversion rates, cart size, and more.
What drives adoption?
A number of studies have shown that Generation Z and Generation Y do not use credit cards. I believe the Federal Reserve has indicated that almost two-thirds of millennials don’t even have a credit card. Afterpay definitely resonates with those generations who love to shop on mobile and love the “buy now, pay later” solution.
Many of these people grew up during the Great Recession and experienced a lot of credit distress and may have large amounts of student loans. They love this idea of spending their own money when they want to spend it and having more control over the experience.
Will the adoption curve accelerate in an economic downturn?
The use of installments will accelerate regardless of economic circumstances. We face a need – again, to revert to the fact that consumers want to avoid credit – that is independent of the macroeconomic climate in which we find ourselves.
Over the past 18 months, we have seen a dramatic increase in the use of Afterpay, the number of consumers using the service, and those who use it repeatedly. We see that it continues to grow. It’s not about not having access to money, it’s about avoiding credit and wanting to be able to control your own funds.
We’re seeing more and more consumers using digital installments for cheaper items and not necessarily the big purchases you’d expect. Do you see it too?
Absoutely. One of the things that surprised me when I started working with a number of retailers was the variety of use cases. Traditionally, you think of installments in the area of large purchases – purchase of furniture, appliances, jewelry, etc. In fact, it has proven to be very effective for retailers to use Afterpay with much smaller baskets. Our average basket size is close to $ 125.
We worked with one retailer – a large retailer – and the average price for their items is around $ 15. And again, this is the kind of place where you wouldn’t expect a consumer to choose Afterpay, but behaviors are changing. In this case, instead of adding three items to a cart, when they use digital payouts, they add seven items to their cart. And the basket size goes from $ 50 to over $ 100.
What the market is seeing and what retailers are seeing is the ability to view installments or payments as a conversion tool rather than a way to pay. One of the big revealing moments for retailers over the past holiday season is whether you can optimize the experience of this rising generation who love to watch things on mobile and take a lot of the friction out of that mobile experience. , including payments. , and offer a payment method that consumers know and trust – you have a much better chance of making that purchase right away.
You also have to look at a lot of data on consumer behavior. Are they continually using the service? Are there any issues with collecting payments?
We see consumers coming to the Afterpay website or going to the mobile app, specifically the mobile app, looking for something they want to buy, and then they’re redirected to the retailer’s website from the.
The consumer behavior that is interesting to point out is, for example, someone who says: “I want to buy Nike, and I know that I want to do it with Afterpay, so I will search Afterpay for retailers that offer Nike. They will see the list of retailers that offer them, go directly to their sites and complete the purchase there. Consumers are no longer just looking at the item they want to buy, but looking at other variables, such as whether it can be purchased with the payment method they want to use.
There is a very large group of customers who are actively engaged with Afterpay. Once they use the product for the first time, they come back again and again. In Australia, for example, this repeated use occurs more than once a month.
Do you share specific knowledge and data with the retailers you work with?
Yes, we have very close relationships with our business partners. In fact, I was just talking to one of them the other day, a shoe maker that has between $ 50 million and $ 100 million in annual online sales. Since implementing Afterpay, this retailer has seen its sales increase by more than 100% and its gross margins increase by more than 80%. And they give us almost all the credit. Another retailer said Afterpay accounts for around 40% of its payout share. On average, most retailers see close to 15%, so there are phenomenal success stories.