Advanced Professional Development Assignment Report: “AfterPay” - A Disruptive Technology

Introduction

Afterpay is a digital service that lets its user to purchase things immediately and be paid in four weekly or fortnightly installments. Whether someone shops online or shops in the store, they get the product right away, without any additional fees. Afterpay works like a loan, but without interest, no extra cost and more. When someone buys something they can just choose Afterpay as their payment method and use the phone app to checkout immediately. Then they have to pay this amount in four installments in eight weeks, with no additional cost. As a result of this more customers are being attracted and retailers love it because they are able to retain more customers using this platform. In fact, many Dental, Chiropractic clinics and other service oriented platforms are taking Afterpay as payment options.

Background information

Afterpay Touch Group commonly known as “Afterpay” is a financial technology company operating in Australia and New Zealand. It was founded in 2015 by Nicolas Molnar (Managing Director) and Anthony Eisen. Afterpay works with three business units namely mobility and payments, health and government and retail-services. Mozo commissioned a nationally representative survey in July 2018 of over 1,000 Australians from a range of age groups and locations.

Loyalty: 36% of Afterpay customers have been using the platform for a year, while a further 31.2% have been using it for 2 or more years.

Online or in-store: 56% of respondents said they typically used Afterpay online through a retailer’s website, followed by 29% who used Afterpay in-store.

Number of purchases: The majority of respondents (65%) said that they typically had 1-2 Afterpay payments on the go each month, while 29.3% admitted that they had as many as 3-5 on the go at once.

Payment choice: 45% of those surveyed said they were using Afterpay more often than a debit or credit card! Although cards still remained king for 55% of those surveyed.

Customers

Afterpay has 3 types of customers. The first type is the individual users of afterpay. Users are allowed to use afterpay to pay their purchase into 4 payment paid weekly or fortnightly. No extra charges apply when customer make payment accordance with their payment schedule. According to the afterpay report 2017, it currently have 1.5 million individual users and still growing. About 0.9 million users are the millennial, over total 6 millennial, it is about 15%.

The second type of customer is the retail, this includes online and in-store. Those company pay the afterpay for it service to gain more sales. Merchant fees takes up a big portion of Afterpay revenue. It is recorded that 80% of the revenue come from merchant fees.

The third customers are the small medium enterprise, which are not only paid for Afterpay service but also invest on Afterpay. For example, David jones and Myer has joined the Afterpay party in 2017, during the test period, 1 over 8 of their online customers using Afterpay to check out. With their join, afterpay has a great expansion with the share price increase from 5.45 dollars to nearly 15 dollars over very short of period.

Employees

As a business, afterpay hire employees over marketing, analyst, strategy and management departure as normal business. With 1.5 million customers and 12000 merchants, however, according to report of the Afterpay last year, it only has about 250 employees on record. It records there are 50 employees based on Sydney and 200 based on Melbourne. Company size is between 200 and 500 employees on LinkedIn profile and still growing. Afterpay team is target on becoming the No. one retail technology company, and Afterpay also looking for talented people to join our mission to get there. The offices of Afterpay are open and collaborative. Beyond the cool Surry Hills office, well-stocked fridge and snack cupboard, quality coffee offering and easygoing workplace culture, Afterpay team is all about providing people with the necessary environment to unlock people’s potential and excel in your career path. Afterpay takes a unique approach to professional development with customised budget allocation for learning opportunities. Afterpay also offer some fantastic perks, including retailer discounts, volunteer leave, Bring your kids to work day and a comprehensive wellbeing program.

How afterpay works an disruptive technology/business

Afterpay as we know it now, can replace traditional credit cards without any need for proper verification or extra charges. Afterpay may not provide so much credit as credit cards would, but it still does a pretty good job of providing credit options to people who want it. Moreover, it is easy to open up an Afterpay account and start using its functions right away. It literally takes like a minute or two to open up the account and start using it. This makes it easier for people to use the technology as credit cards takes up at least a week or more to show up. Besides that you need to go to bank, sign up for it, provide all sorts of information, get verified and then you might get the card.

There are certain things and requirements for getting a credit card which if not met you will not get the card. With afterpay this kind of hassle is gone. You go to the website and sign up for it and you are done and ready to go. So, Afterpay works as a disruptive technology for many credit card companies as more and more people are getting familiar with it and more shops are implementing this form of payment system on a regular basis.

1. Business challenges and dilemmas

Although Afterpay still maintains its growth momentum, the company has some risks and business challenges.

• 90% of Afterpay’s transaction is from repeat customers and it requires the ability to retain and grow Afterpay retail merchant client base.
• Minors could buy alcohol on the platform. Meanwhile, a false account could be set up using a prepaid anonymous mobile sim card and VISA card. The stock price is affected and it is a regulatory issue.
• Customers do not need to provide proof of repayment capability. In the last financial year, Afterpay got roughly $11 million in late fees which is not covered in the $17.4 million lost to bad debt. As no interest is charged, the bad debt is, in fact, a drain on the company’s profit.
• The low solvency of some people leads to an increase in the expected required investment because the length of the capital returned.
• Due to the changing regulatory environment, the company requires to invest to improve their products, such as the validation process and credit check. Hence the cost increases.

2. Solutions to the challenges and dilemmas

Some suggestions are recommended to overcome these challenges and difficulties.

• The Afterpay user base is heavily concentrated on teenagers. Therefore some form of new method should be applied in order to retain and grow the client base.
• A credit score system can be adopted and the more credit points, the higher the cost of borrowing. Start with the low integral, an increase or decrease in credit points will be dependent on by how often and how much a user can borrow, and whether the repayment is on time.
• The company should work actively with regulators to reduce unnecessary spending or product restrictions.
• Cooperation with Banks or companies that can authenticate identity reduces identity fraud. Authentication should be required on the first time of registration, and as 90% of Afterpay’s transactions are from repeat customer, so proper form of cooperation between Afterpay and such organizations should be made no matter whatever the cost.
• A photo should be required and matched with ID during the registration, in order to reduce identity fraud.

Conclusion & Recommendations

Although having all the problems with their bad debt issues, Afterpay have already started improving their verification system. As of 2 months ago Afterpay has started taking ID verification from its users. But there still is a lot of loopholes, like a proof of repayment system and higher levels of verification. It can roughly take around $2-3 million to put these implementation into place. Further Afterpay can work with Government organisations to help with verifying identity for all sorts of users. If those can be implemented properly, Afterpay can give its competitor a run for their money.