How Does Afterpay Make Money With Their Kind of Business


Afterpay is a consumer credit service that allows them to buy now and pay later. It generates revenue through merchant fees, late payment fees, and advertising.

With its headquarters in Sydney, Afterpay, founded in 2014, has developed into one of the world’s top companies in the Buy Now, Pay Later industry. Square purchased the firm in 2022 for USD 29 billion.

This article will explain how Afterpay works, provide information on its business plan and explain how the firm generates money (even though they charge customers no interest).

Continue reading as we walk you through how Afterpay makes money with their kind of business.

Related: Louisiana Small Business Grants (2022/2023) | Requirments and How to Apply

Afterpay Business

After obtaining $8 million from investors in 2015 and making its initial public offering (IPO) in 2016, Afterpay was able to grow its business rapidly.

In 2018, the firm expanded into the US market with the help of major retailers such as Urban Outfitters and Anthropologie, and it purchased Clearpay, the UK buy now, pay later service.

They purchased Pagantis, a Spanish fintech firm, in 2020. Square announced its acquisition of the firm in 2021. The firm processed $22.4 billion in transactions in the fiscal year 2021, had 16.2 million consumers, and 98,200 active merchants.

How Does Afterpay Work

There are hundreds of online shops that accept Afterpay, including ASOS, Pandora, The RealReal, Lululemon, Forever 21, and many more.

From a customer’s standpoint, the service works as follows: after checking out at an online retailer, pick Afterpay as your chosen mode of payment.

You will then be asked to pay for your purchases in four interest-free payments. Afterpay does not charge interest or other fees (as long as the items are delivered on time).

Afterpay will prevent you from making further transactions on its platform if you are late with a payment. Late fees may also apply, depending on your country of residency.

Afterpay allows customers to order products for free and test them out first. If customers do not like them, they may return them to the merchant.

Customers may find bargains on Afterpay’s app, which provides discounts of up to 40%, and purchase directly on the merchant’s site.

Australia, Canada, France, New Zealand, Spain, the United Kingdom, and the United States accept Afterpay.

Afterpay’s platform is accessible via the company’s website and mobile phone application (available on Android and iOS devices).

Related: Louisiana Nonprofit and Small Business Assistance Programs: Eligibility and Deadline

Does Afterpay Pay The Merchant in Full?

Yes. Whether your Afterpay clients pay in whole or skip payments, merchants always pay the total purchase price upfront, minus Afterpay’s merchant costs.

How Does Afterpay Make Money?

Afterpay earns money through charging merchants’ fees, late payment costs, interchange fees, and cost-per-click advertising.

Furthermore, the firm produces money through its international subsidiaries, notably Clearpay, based in the United Kingdom.

Because its overseas subsidiaries follow similar monetization patterns, the next section will solely look at the money that may be directly ascribed to Afterpay.

So, without much talking, let’s look at how Afterpay generates revenue.

#1. Merchant Fees

Afterpay, as previously indicated, does not charge consumers any interest or additional fees for the ability to pay in installments.

Instead, the firm’s merchant partners pay the company for each transaction processed through its payment gateway.

However, Afterpay charges retailers a fixed fee of 30 cents for every transaction. In addition, businesses must pay a variable charge ranging from 4 to 6 percent.

The cost is comparable to those charged by competitors such as Quadpay or Sezzle.

The value and volume of goods a merchant sells are defined by the actual proportion. The fewer the costs, the more a business sells.

First, Afterpay assumes the risk of payment default while pursuing debt collection if necessary.

Second, Afterpay says its installment choices result in a 10% to 20% rise in average order value.

Finally, having a well-known payment service, such as Afterpay, frequently results in more consumers and excellent conversion rates. Furthermore, these customers return fewer purchases on average.

Merchant fees account for the bulk of the income Afterpay (and its overseas subsidiaries).

For several reasons, merchants wish to include a Buy Now, Pay Later option on their platform. 

Related: Qualified Small Business Stock | Requirements, Sale, Checklists, & Holding Period

#2. Late Payment Fees

Late payment fees are the second source of income. These are paid whenever a consumer fails to make a timely payment. The invoice usually specifies the due date.

If payment is not made on time, Afterpay will attempt to collect the installment automatically from the customer’s debit or credit card.

The firm charges a $10 late fee at first. Non-payment of the invoice within seven days will result in an additional $7 charge.

Also, late payment costs for items under $40 are limited to $10. Every order that is over $40 may attract expenses of up to $68.

Late payment fee income has dropped as a percentage of revenue in recent years.

#3. Cost Per Click Advertising

Afterpay will provide in-app advertising in August 2021, allowing its merchant partners to advertise their offerings.

The advertisements will appear within Afterpay’s own Android and iOS apps. However, they generate Revenue through cost-per-click (CPC) advertising.

If a consumer clicks on one of the advertised spots, the retailer pays Afterpay a modest charge.

With millions of downloads, advertising on Afterpay’s app may be a highly profitable alternative for many retailers looking to increase sales.

Related: Easy Guide to Grants for Small Business in Missouri | 2022

#4. Exchange Fees

Afterpay will issue a digital debit card in March 2021. Before the rollout, in-store transactions required members to scan their phones’ barcodes.

The card was created in collaboration with Mastercard. Interchange fees are one of the most important sources of revenue for debit and credit cards.

These costs, typically approximately 1%, are imposed every time you pay using the card. The merchant taking the money pays the charge.

In the case of Afterpay, the interchange money is anticipated to be divided with Mastercard, which supplies the underlying payment network.

The objective of Afterpay is to become a viable money management solution for its consumers. To that aim, it has developed Money by Afterpay, which gives customers insights into their daily and weekly spending habits, allowing them to create savings goals and much more.

Afterpay may offer other goods that can be monetized in the future if the company accumulates more data points about the user’s financial condition and spending patterns.

Afterpay, for example, might start recommending various insurance products or even permit crypto and stock trading.

What Does Afterpay Charge the Merchant?

The online store is paid a set fee of 30 cents and a commission that fluctuates depending on the amount and number of Afterpay transactions performed.

The smaller the percentage charge, the more you sell at a more fantastic price. The cost ranges from a little more than 6% for each transaction to 4% per transaction.

While the price is more than standard credit card rates, the advantages may offset the increased cost.

Currently, they accept Mastercard and Visa credit and debit cards issued in Australia, and they integrate with Shopify, WooCommerce, Neto, BigCommerce, and Magento.

Related: Easy Guide to South Carolina Small Business Grants

How Does Afterpay Help Shopify Merchants?

The advantage for the Shopify business is that they may utilize this service to provide repayment options to clients while still receiving immediate payment (Afterpay takes the risk).

Afterpay assists Shopify shops by:

  • Increased sales result from more excellent online conversion rates – your clients are inspired to make purchases they may otherwise avoid.
  • Higher order value – If new consumers have more time to pay it off, they may spend more.
  • A broader client base – your new consumers may be familiar with Afterpay.
  • Reduced cart abandonment – more customers, may buy right away.
  • Potential repeat purchases – As clients become more accustomed and comfortable with your store/checkout, their chances of purchasing from you rise.
  • Reduced risk of fraud/credit – Afterpay resolves purchase payments in advance, lowering the risk of credit card fraud, which benefits many small Shopify firms.
  • Lower customer service expenses, lower marketing expenditures, and lower return rates minimize costs.


How Do Merchants Get Paid from Afterpay?

Before the reconciliation payout, Afterpay merchant fees are computed and subtracted from each transaction. Reconciliation disbursements are made only through ACH payments to US bank accounts.

How Much Does it Cost to Use Afterpay for Your Business?

Afterpay charges merchants a $0.30 fixed fee and a variable 4-6% commission rate for each Afterpay transaction. Customers can use Afterpay to make interest-free payments for free, but late fees will apply if they fail to make payments on time.

How Long Does Afterpay Take to Approve Merchants?

Afterpay will issue you a Merchant ID and a Secret Key. This procedure might take several days or weeks to complete depending on your application.

How Much Does Klarna Charge Merchants?

Most of Klarna’s revenue comes from merchant commissions ($0.30 flat charge and 3.29% variable rate) and interchange fees. It also collects interest on client accounts paid with financing.


Afterpay is a credit solution that assists both individuals and companies. Investors should be aware that its business strategy is subject to regulatory risk.

However, those interested in Afterpay can purchase its stock (SQ) on the New York Stock Exchange.



Leave a Reply

Your email address will not be published. Required fields are marked *

You May Also Like