how does afterpay make money

How Does Afterpay Make Money In 2023: Afterpay’s Business Model Explained

Ariana Grande perfectly captures the essence of an ideal shopping experience when she sings, “I see it, I like it, I want it, and I got it.” — Like who wouldn’t love the experience?

Now what if this was a possibility in the real world, and you could actually do this without having to worry about the money constraint?

Well, with tech progressing at an unprecedented rate, today there are services that allow you to make purchases and pay for them at a later time. The lifesaver of all shopaholics, these apps are known as Buy Now, Pay Later (BNPL) apps.

And we can’t have a conversation about BNPL without mentioning Afterpay, the much-loved GenZ BNPL software that has taken the market by storm!

What is Afterpay and How Does It Work?

Afterpay is a Buy Now, Pay Later service that enables you to “purchase now and pay later,” as the name implies. It allows customers to purchase an item now and pay the amount for it later without having to pay an interest fee.

For using the app, you just have to download it, follow the in-app instructions, and set up the Afterpay account. Once a customer registers on the platform, Afterpay then conducts a soft credit check after which you are good to go!

Afterpay offers its consumers short-term loans that they can use to finance significant purchases and to spread out the expense of expensive items — relieving them of the strain of paying all at once.

Wondering how this Afterpay payment plan exactly operates?

The role of Afterpay is to act as a go-between for consumers and merchants.

When a customer makes a purchase, Afterpay pays the whole amount upfront to the retailer and then collects payment from the customer in four equal biweekly installments.

The best part about this? Well, there are quite a few that make the entire shopping experience go down without a hitch:

  • There’s no need to have a credit card and there are no interest fees.
  • For receiving these small loans, a consumer does not have to go through the credit history check and credit score approval process.
  • With responsible use and on-time payment, a consumer can increase the available credit limit.
  • The payment method or payment option saves customers from the cycle of bad debt and credit card debt.

But what good does this do for the retailers, though?

Well, businesses that provide an option for BNPL service, like Afterpay to their clients report having enhanced sales and higher average order value. The rationale is that there are fewer abandoned shopping carts and more sales because the financial barrier is removed.

This incredibly clever Afterpay business model is a win-win for both customers and retailers!

Also Read: Can You Go To Jail For Not Paying AfterPay?

How Does Afterpay Make Money?

Afterpay makes money through a multitude of revenue streams, including fees charged to merchants, Late payment fees, Interchange fees, and Advertising.

Afterpay has an elaborate business model that puts a lot of planning, calculation, and thought into action. Let’s look more in-depth at each of them:

Merchant fees

To begin, why don’t we get a better understanding of what merchant fees are exactly? — When a consumer uses Afterpay to purchase an item from the merchant’s store, the merchant is required to pay a certain transaction fee, which is referred to as a merchant fee.

Afterpay platform has on boarded more than 88,200 merchants, thus it can be safely assumed that merchant fees account for a significant portion of the company’s income.

Afterpay’s unique cost structure in this case consists of a $0.30 flat fee plus a commission of 4% to 6% per transaction, with the latter amount varying with sales volume.

So when a retailer sells more at a greater price, their percentage fee drops.

BNPL’s structure has been widely embraced by retailers since they anticipate fewer product cancellations and returns as well.

Late payment fees

Afterpay’s late fees currently account for 10% of revenue, but that number is predicted to rise to 13% by 2023 — making it a significant source of income for the company.

Once a customer uses Afterpay to make a purchase, they get an invoice with all the details about the consecutive due dates. Customers who don’t pay their bills on time will be charged a $10 late payment fee.

A second attempt at billing will be made by the company in the next seven days. If the customer again misses the payment date and is unable to clear the due, they will be charged a $7 late fee.

This scheduling and rescheduling will continue till the firm is paid in full or until the maximum late fee is reached.

The maximum late fee for an item costing less than $40 is $10, while the maximum late fee for an order costing $40 or more is 25% of the original order value (or $68, whichever is less).

Source: LinkedIn

Interchange Fees

If a customer pays with a credit card or debit card, the issuing bank will charge the merchant a fee known as the interchange fee. The fee is used to defray the operational expenses incurred when a card is used for payment.

Afterpay has teamed with MasterCard to provide a debit card that may be used to make purchases. This card was first made available to customers in March of 2021.

Each time a customer swipes this debit card, the underlying payment network, MasterCard, pays a fee to Afterpay — making it a successful revenue model!

Since it’s a new addition to the business model of Afterpay, the exact amount generated from interchange fees is still unknown.


A merchant has the option of running advertisements about their products within the Afterpay app, which is part of Afterpay’s in-app advertising feature.

By doing so, retailers can directly reach out to customers who have a high purchasing intent and who are already committed to their brand, ultimately leading to an increase in sales.

Afterpay’s ads operate under a pay-per-click basis, which requires merchants to make a payment to Afterpay whenever one of their customers clicks on one of their adverts.

Since the introduction of this feature, Afterpay advertisements have been well accepted in terms of increasing traffic and businesses have noticed a 20% rise in their sales after running ads on the platform.

Also Read: How Does Tubi Make Money?

History Of Afterpay

Afterpay is an Australian fintech startup launched in October 2014 by Nick Molnar and Anthony Eisen.

After 1.5 years in business, on May 4, 2016, the company went public on the Australian Securities Exchange for A$25 million.

Within the next 1 year, the firm reached 1 million users in 2017 and expanded its business into the lands of New Zealand. This major achievement was merely the start. This number grew to a little over 2 million, and to over 5 million in the following 3 years!

In August 2018, Clearpay, a BNPL service based out of the United Kingdom, was bought by Afterpay for 90% of its equity. Since then, Clearpay has seen explosive growth in the United Kingdom.

The app has been shattering records and creating new standards ever since it first came into existence. Its current market cap stands at a whopping $14.76 Billion.

Because of its innovative business model and approach, Afterpay had been able to raise a total of $448.7 million over 3 separate fundraising rounds. And in January 2022, it was purchased by Square, Inc. (later rebranded Block, Inc. in December 2021) for a staggering US$29 billion.

Since its release, the app has gained popularity among Millennials and Gen Z users, who together make up the majority of its users.

Currently, there are over 16 million active Afterpay users and it generates over $519.2 million in revenue from its diverse revenue streams.

Even though it entered the BNPL market late, Afterpay has now teamed up with some of the greatest names in the world, including Adidas, Kylie Skin, Fight Club, Goat, DSW, and many more — proving it is here for the long run!

Also Read: How Does Pluto TV Make Money?


Afterpay isn’t the only app out there ruling the BNPL sector, there are loads of other apss that are doing brilliantly in the market like Cash App, Affirm, Klarna, Splitit, Google Pay, GoCardless, and Sezzle, among many others.

Let’s have a look at the top 3 competitors of Afterpay right now:


Affirm, a BNPL-based company founded in 2012, currently has more than 12.7 million active users worldwide.

With partnerships with industry giants like Amazon, Shopify, and Walmart, its total revenue for the year ending June 30, 2022, was $1.349B, a rise of 55.01% year over year, making it a significant rival to Afterpay.

With a no-late-fee structure, Affirm processed almost $3.9 billion in loans in the first three months of 2022, making it one of the most popular apps for the “Buy Now, Pay Later” process!

Headquartered in San Francisco, California, this firm has raised a whopping $1.5B from funding in 12 rounds over the last 8 years, proving that it is surely well-liked by its financial backers.

These staggering stats are the direct result of a unique business model and a streamlined operation that stands toe-to-toe with Afterpay.


Launched in 2017, the Sezzle is also a no-interest fee payment platform that allows buyers to divide the cost of their products into four monthly payments. Beginning with the initial payment made at the time of purchase, each of the next three payments stays due at evenly spaced intervals over the subsequent six weeks.

This US-based company, headquartered in Minneapolis, currently has more than 7.8 million registered users and greater than 40,000 merchants — making it a favored app among BNPL users.

Sezzle has raised more than $301.6 million in 7 fundraising rounds over the past 6 years, with the most recent round of funding being on July 15, 2021.

Now coming to Sezzle vs Afterpay, let’s see how they stack up against one another:

Gives its customers two weeks to pay each installment.Gives its customers one week to pay each installment.
Available only in the United States and Canada.Operates in Australia, the United Kingdom, Canada, the United States, and New Zealand.
6 weeks installment payment period4 weeks installment payment period


Valued at a whopping $6.7 billion, the Swedish fintech firm Klarna processes payments for e-commerce sites and accepts direct payments, and post-purchase payments.

The Stockholm and Berlin-based firm has 147 million users and 250,000 retailers who are willing to take payments via their app at the present time.

Afterpay is in second with a 22% acceptance rate, but Klarna dominates the BNPL market with its staggering 53% adoption rate!

Source: Business of Apps

According to Crunchbase, Klarna has raised over $4.5 billion in funding in 27 funding rounds giving serious competition to Afterpay in the BNPL space.

Despite being a relative newcomer to the market, the statistics and data demonstrate the app’s phenomenal growth to become the most downloaded Buy Now Pay Later app available.

Although it lags behind some of its rivals at the moment, there’s no doubt that the company’s brilliant minds will catch up with them soon!

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