Afterpay’s Journey Beyond Buy Now, Pay Later

One of the biggest retail trends to surface during the pandemic has been the popularity of buy now, pay later solutions, or ‘BNPL’ as it is commonly referred to. Essentially a digitized version of layaway, BNPL is facilitated by a third-party provider and allows customers to spread the purchase price of the item over time into equal monthly installments without interest.

The market is growing quickly. After surging during 2020, Bank of America still projects the BNPL sector to grow 10 to 15 times the size of what it is. However, many providers still face problems typically associated with early-stage payment solutions: How do we exist beyond the checkout page and buy button?

The answer is rooted in a “build it and they will come” mentality. As one of the biggest BNPL platforms with over 13 million users globally, Afterpay realized the ideal growth strategy did not just mean adding new online retailers. It meant building a platform that adds so much value for customers that it can actually inspire new shopping journeys, rather than being relegated as another payment option at checkout.

The trick to this kind of expansion comes in three parts: loyalty, discovery, and merchant addition. The sweet spot for Afterpay involves building a diverse list of retail partners, having a shopper discover that a new merchant accepts Afterpay, and then choosing to shop with them—in-person or online. To facilitate this, Afterpay launched Shop Directory, a marketplace-style platform that catalogs every Afterpay merchant. With Shop Directory, users can choose to shop only where the service is accepted. Alex Fisher, VP of retail for Afterpay, says it’s all about becoming a destination.

“Our customers report that the top deciding factor in where they shop is whether Afterpay is offered,” she explains. “Shop Directory plays an important role, both in the discovery of new retailers and serving as a go-to for previously-shopped favorites.”

Need to Know

• Afterpay, a leading buy now, pay later platform, has grown rapidly over the last two years, topping 13 million total customers with eight million users in the US.
• Afterpay expanded into physical stores this past October, with 700,000 users downloading the digital Afterpay card in one month.
• 90% of shoppers using Afterpay are repeat customers.
• The number of merchants using Afterpay grew 72% from 2019 to 2020.
• The platform’s Shop Directory has become a powerful tool, letting customers search different shops that accept Afterpay, powered by personalized recommendations and tailored discounts.
• Shop Directory sent 35 million retailer referrals in November 2020 alone.
• Afterpay is one of a handful of BNPL providers, with Klarna, PayPal, and Affirm also operating in North America.

Afterpay’s BNPL success

As a digital-first solution, BNPL fits perfectly with the ongoing transition to online spending, and during a time when cash flow and budgeting is more important than ever, it lets shoppers easily budget and plan for both small (sub $100) and large (up to $10,000 in some cases) purchases. 

On the back of this base premise, Afterpay has become a leader in the space. After expanding into the US just over two years ago, the company has more than eight million customers in the country, growing over 200% from 2019 to 2020. Worldwide, merchants using Afterpay grew 72%, with 90% of users being repeat customers, which Afterpay sees as validation of the value it promises. 

“Our customers report that the top deciding factor in where they shop is whether Afterpay is offered.”

Alex Fisher, VP of Retail, Afterpay.

Here’s how it works. First, customers sign up by tying their Afterpay card to either their debit card or credit card. When shopping online at an accepted retailer, they simply hit the Afterpay button and the payment will be spread over four parts, while Afterpay pays the merchant the full price of the purchase up front. 

In July 2020, that model expanded to in-store offerings. Customers can now download the Afterpay app, set up a digital card, and add it to either Apple Pay or Google Pay. This is as seamless as using any traditional digital payment and the purchase is split instantly. Within a month of launching the in-store solution, 700,000 people added the Afterpay card to their digital wallets.

“We place a lot of emphasis on meeting our customers where they are, both online and off,” says Fisher. “Just as we have invested in developing our digital channels to support online customers throughout their shopping journey, we are now exploring offline channels that do the same for our in-store shoppers.”

Ease of use is a big attractor for Afterpay. It makes budgeting and sizable payments as easy as one tap or click. This is why the platform has attracted the likes of massive brands as retailers look to meet their customers where they live and offer as much flexibility as possible. 

Afterpay has tens of thousands of merchants, with some major additions coming in November 2020. In the same week, the platform added The Gap’s suite of brands (Old Navy, Banana Republic) as well as Crocs, Krewe, Fabletics, and more. Fashion and beauty is the name of the game right now, but Afterpay has plans to expand into kitchen and home, home furnishings, and big-box “every day” verticals soon. 

Becoming a shopping destination

There is a ton of value in partnering with household retail names. For Afterpay, it adds trust and credibility to the brand, and for customers, it’s where they already shop, so one more budget-friendly payment option is always a good thing. But there’s a deeper story tied to the thousands of not-so-recognizable retailers that explains Afterpay’s true intentions. 

The Shop Directory platform has become Afterpay’s biggest asset. Composed of unique retailers, customers can hop on the platform and browse through different jewelry, clothing, housewares and other brands, all accepting Afterpay. It’s a bit of a third-party marketplace shopping mall hybrid, and it’s what’s moving Afterpay from checkout tool to recommendation engine. The reward for partners isn’t too bad either—on average, 72% of retailers see bigger cart sizes. 

“Our Shop Directory acts as a shopping discovery engine, personalized to a customers’ purchase history.”

Alex Fisher

Afterpay uses machine learning to analyze a customer’s previous purchase history and tailor retailer recommendations specifically for them. This has led to incredible growth for both Afterpay and its merchant network. In November 2020 alone, Afterpay’s retail partners saw 35 million referral clicks from Shop Directory (the average is around 20 million referrals per month). Coupled with the fact that basket sizes of Afterpay shoppers grew 30% during the holidays, it meant that retailers of all sizes were able to acquire new customers and boost sales through channels that didn’t exist just two years ago. 

“Customers are increasingly aware that Afterpay is more than just an installment payments product,” says Fisher. “Our Shop Directory acts as a shopping discovery engine, personalized to a customers’ purchase history. Content cycles at regular intervals to ensure it remains relevant and customers have a reason to return.”

The Shop Directory platform is how Afterpay will grow horizontally as well as vertically. Like any payment option, BNPL growth will plateau as the option becomes ubiquitous, but connecting shoppers with new retailers, customizing offers and discounts, and crafting a personalized concierge to go along with BNPL? That’s Afterpay’s plan to work backward from checkout.

“Shop Directory is a destination where customers can find our newest merchants and can filter brands by category, trends, values, and those offering sales,” says Fisher. “It’s also home to our store locator map which helps customers locate stores near them that accept Afterpay. Whether customers are looking to browse through our thousands of retailers or they have a very specific item they’re looking for, our app and website are designed to support them through their shopping journey.”

Afterpay also listens to customer ideas. A new feature, Favorites, which allows customers to keep track of all the items they want to use Afterpay for, is a direct result of inbound customer requests. 

The complete BNPL journey

The final component of Afterpay’s growth strategy is the loyalty program Pulse. Developed “out of a desire to acknowledge and reward these loyal customers in a way that remained true to our values,” according to Fisher, Pulse rewards Afterpay customers who make their payments on-time and choose the platform as their main checkout option. 

Pulse offers perks such as no payment up front on eligible purchases, additional payment reschedules, and access to exclusive products and discounts. More importantly, it’s simply a loyalty program that offers deep rewards that debit cards and most credit cards cannot match. 

Loyalty, in addition to the Shop Directory platform, is driving customers to begin their shopping on Afterpay. 

“We’ve been incredibly fortunate to build a community of loyal Afterpay customers who, without formal programs or incentives, were choosing where to shop based on whether Afterpay was offered,” says Fisher. “Customers have actually mobilized to request that their favorite retailers partner with Afterpay.”

Afterpay is following in the footsteps of the most successful fintechs on the planet such as PayPal by doing everything it can to get past the notion of simply being a purchase button. By embracing discovery in tandem with flexibility, Afterpay became more than an option—it turned into a destination. 

“From the outset, our focus has always been on providing a service that’s a win-win for our customers and retail partners alike,” says Fisher.