Buy Now, Pay Later (BNPL) services are among the most popular ways for credit card-shy Gen Z and Millennials to get their instant-gratification fix.
Afterpay is a major BNPL provider for both online and point of sale (POS) transactions. Why is it popular? It increases sales, as customers can pay off in interest-free instalments over 6 weeks while the business gets paid immediately.
By far the largest service provider, Afterpay had a BNPL market share of 43.8% in 2021 according to IBISWorld, followed by Zip Co’s 23.6% market share in Australia.
Australia’s BNPL market is generally a battleground, with companies and banks jockeying for market share. PayPal, Humm Group, CommBank, Klarna and Payright are other top contenders.
But let’s get to the point: how does Afterpay work for a small business?
Afterpay facts
- Owned by Block, Inc. since 2022, which also owns payment provider Square
- Used both online and for in-person sales
- Customers pay in 4 interest-free instalments over 6 weeks
- Can only accept it through certain payment providers
How it works, in a nutshell
Afterpay lets consumers buy a product immediately for an upfront cost of about 25% of the total price, followed by 3 more interest-free instalments over the next 6 weeks. The merchant is paid the total purchase amount upfront, minus transaction fees.
Businesses can enable Afterpay for online and in-store transactions, if their payment provider integrates with it.
For consumers, there are no credit checks, no interest and no additional fees when paying on time.
How costly is it exactly?
Deciding whether your business should accept Afterpay comes down to cost, margins and your sales volume.
Afterpay makes money by charging merchants a fixed transaction fee of $0.30 and 4-6% commission on each sale. This is significantly more than EFTPOS fees (about 0.8-1.75% for the leading EFTPOS machines) – enough to make businesses think twice.
Increase in sales
But the benefits of Afterpay may outweigh the additional cost. For example, customers are less likely to abandon large online shopping carts at checkout. Where’s the risk if they’re only paying a small portion of the total price on the day?
In fact, studies show Afterpay may increase cart size, profits, customer acquisition, and sales volume. Merchants using Afterpay have experienced:
- 11% increase in profits
- 13% more customers
- 17% increase in average shopping cart size
And it’s not just about profits (though we all love profit most). Merchants using Afterpay may benefit from a reduced risk of fraud. The service settles payments upfront with merchants, which reduces the risk of credit card fraud – welcome news to any small business that has been caught on the wrong side of fraudsters or struggled with chargebacks.
Customers also seem more motivated to make purchases they typically think twice about with Afterpay. They may even make repeat purchases with brands, as they will be familiar with your store checkout process.
Better for larger transaction values?
While Afterpay does not specify a minimum purchase amount for use at checkout, many brands configure their minimum and maximum order values themselves.
Afterpay app, as seen in App Store.
For example, setting a minimum spend of $50 might encourage customers to at least hit that threshold when shopping – a win for the business.
Additionally, Afterpay may request the average order volume and annual sales from small businesses looking to sign up. From that, we can assume the service is mostly geared towards businesses selling larger ticket items, and not cafés and convenience stores, even if they would benefit from increased sales.
How to add Afterpay to an online store
Afterpay integrates with ecommerce stores and shopping cart software, including the best ecommerce platforms for small businesses in Australia:
- Shopify
- Squarespace
- Square
- Wix
- WooCommerce
Setting up Afterpay for an ecommerce store is usually straightforward, but sometimes requires some technical steps.
Shopify merchants can head to the installation guide on Afterpay’s developer site. There, they’ll find a link to the installation page where they log into their Shopify account. From there, it’s a case of connecting Afterpay with the store, granting access, installing and then activating Afterpay.
Naturally, Square accepts Afterpay from the outset, since it’s owned by the same company (Block, Inc.). It just needs to be toggled on before it’s shown as a payment method at the point of sale or in your online store.
How to offer Afterpay in physical stores
The original way of enabling in-store sales was through Afterpay’s barcode solution. This service is no longer accepted. Instead, merchants can set up their physical locations to accept the digital Afterpay Card on their card machines.
Customers store this card in their digital wallet and tap it on a contactless EFTPOS machine where Afterpay is accepted.
Eligible Square merchants only need to toggle on Afterpay acceptance in their account to add it to their point of sale as a payment option. When that’s done, any of Square’s card machines can accept the Afterpay Card.
Other merchants, for example those using Adyen or Stripe (both compatible with Afterpay), have to jump through more hoops. And not all EFTPOS providers can offer it. Businesses might need to submit a request form and ask for help from Afterpay to enable the functionality on compatible POS systems.
