We recently met and interviewed Nick Molnar, the Founder and CEO of Afterpay at Shoptalk. Afterpay allows merchants to offer flexible payment options upon checkout. Instead of paying for an order in full, customers can now pay for an order in 4 equal payments. Used by top merchants like Kylie Cosmetics, Steve Madden, ThirdLove and more, Afterpay has become of the premier payment services for merchants.
Tell us a little bit about Afterpay.
The background on Afterpay is that I come from a retail background. My family was in jewelry. I sold the most jewelry on Ebay in Australia in my bedroom in university. And then founded out Afterpay with my neighbor. In Australia, we raised out first round of money in August 2015. Three and a half years ago, a bit more. We then took the company public on the Australian stock exchange nine months later. We've grown very quickly since then, so we went from 20,000 retailers to well over two and a half million customers and we’re growing fast.
In order to raise substantial money, we had to take the company public so it was out of no desire other than necessity. But going public has been great for us, we've kind of earned the respect of the retailers as well. We wanted to say not only were we the highest level of you know payments compliance, but we were also the highest level of business compliance and going public enabled that.
What’s the problem that you are seeing with payments in today’s market?
The core thing is, and it’s not widely spoken about, but the whole genesis is the global financial crisis in 2008. It hit some millennials that just turned 18 and it was, "don't spend money that you don't have", and not widely covered. In the U.S., two out of three people aged 18 to 30 don't own a credit card.
They use debit cards. This is their form of budgeting. They don't have to take out a line of credit, they can link it into their bank balance and spend their own money. 85% of our customers use debit cards.
But they still get the payment flexibility to budget. It's this generational change in how people spend their money and the reason why it's important for retail is because the debit card customer spends less than the credit card customer.
So how can you better serve that customer who's changed their spending habits? You give them flexibility, average order value goes up, conversion rate goes up, and the return on investment is substantial. In Australia now, we generally process 25% of a retailer's transaction at a minimum within 24 hours. In the U.S. within a week, we've seen us be the single most popular payment method behind credit cards. So you know the demand is there.
What merchants do you work with?
We’re lucky to work with some of the coolest brands in the world. We work with everyone from Urban Outfitters, Revolve, Everlane, ThirdLove, Forever 21, Kylie and Kim and Steve Madden. These are market leaders. We were purposeful in who we partnered with and they wanted to partner with us because they understood this debit card trend.
But these are people that were ahead of the curve. Now, we've seen the retail community start to embrace installment payments across the board. It's cool to have those brands are the ones that are telling everyone about us and building that love with our customers.
What brings you to ShopTalk? What are you finding here?
I think there's a couple of different benefits of being here. One is to be in the same place with the best minds in retail, is always amazing. I mean what you learn by just collaborating and communicating with your peers is fantastic. And then just learning about what's important for retail. You know a lot of the trends are now getting kind of a different execution. The trends are kind of still the same, it’s now more about the technology that enables it and how it gets delivered. But it's always good just to hear what's keeping retailers up at night, so you stay in tune with what's important.
What's something that you think is going to change the world of commerce?
From our perspective, in Australia now, we’re the second highest traffic driver behind Google for retail. Our customers actually come to us to decide what they want to buy, so how we build that in the U.S. is really interesting. We had two million leads in the U.S. that we sent last month to our retailers and this is about enablement.
It's about how we work with them to better serve this customer. No one says, “I love how I paid for that.” But they love us. There's a group on Facebook called We Love Afterpay that has a quarter of a million members. They are incredibly passionate about us, and so that I think from our perspective the evolution of that platform is everything for us. It's what we work with our retailers on. It's like were a marketing channel not a payment method. That's key.
The interesting thing is that the credit industry is built from profiting from misbehavior not good behavior, so the incentives aren't aligned. The longer you’re late, the bigger the idea, and the more money that the credit card makes. That's why millennials don't use credit, so when you flip it around and you say to the retailer, "Hey you know, we're going to charge you a small fee above your credit card processing, but in return you're going to get this customer who's going to have this feeling.” Amazing things happen, because its finally a product that says I'm not out to get you". You know, it's actually, we lose more. If the customer goes late, we lose. We pay the retailer.
Our incentives are in line and customers are smart and that's why this feeling comes out because there like “I only want to shop based on who accepts Afterpay.”