Afterpay fine tunes UK expansion

By Roger Baird on Thursday 28 March 2019

Digital Banking

The payments platform plans a British launch in the second half of the year into an underdeveloped part of the market.

Australian buy-now-pay-later platform Afterpay hopes to exploit a gap in the UK’s fiercely competitive technology market.

The fast-growing firm used its shares to buy a majority stake in UK payments rival ClearPay last August, adding that the deal would “accelerate its entry into the UK market.”

It also raised A$108m from investors to fund further overseas expansion, after launching in the US last May.  In November, celebrity and designer Kim Kardashian's beauty company joined Afterpay lahead of the all-important Black Friday sales weekend.

Gearing up British operations might be considered a smart move by co-founders Anthony Eisen and Nicholas Molnar, who is a speaker at the AltFi Australasia Summit on the 15th April. Molnar and Eisen started the Melbourne-based business favoured by millennials in 2014. It listed on the Australian Stock Exchange two years later.

Afterplay plans to launch in the UK in the second half of 2019, it said during a first half results announcement last month.

UK launch partner

It has spent A$1.5m setting up the UK business, adding that “technical set up and in-market team development [were] well progressed”.

The platform said Urban Outfitters would be its British “launch partner merchant”, adding that it was in talks with a number of other retailers.

The UK retail market is estimated at A$720bn a year, while Britain’s online market is put at A$130bn annually.

The UK technology economy is several years older than Australia’s, and London’s deep capital markets has attracted talent and new firms that work across a range of sectors, from fintech, digital entertainment, cyber security and others.

But there are relatively few payment firms in the UK that do exactly what Afterpay does. The platform allows shoppers to buy fashion from a range of stores and pay later. This comes as four equal payments over eight weeks with no interest, although late payments can amount to 25 per cent of the original purchase price. It does not conduct credit checks.

The payments business generates cash from retailers who pay between 4 per cent to 6 per cent of the sale for the service. Afterpay attracts a range of brands such as Skechers, Sunglass Hut and boo.hoo to use its platform.

Retail sales on the Afterpay platform jumped four times to A$2.3bn last year. The firm posted revenues also up four times to A$142m over the same period, while its net loss narrowed by 7 per cent to A$9m.

Leading fintech figure

The business has 2.3 million active users. It claims more than 10 per cent of online sales in Australia are now funded through Afterpay and that it attracts one in every four millennials in the country to its platform.

This has made Afterpay’s 28-year-old chief executive Nicholas Molnar, with a net worth of A$250m, one of Australia’s leading fintech figures.

Molnar said: “We’ve created the opposite of a traditional credit product and, more than anything, we focus on building relationships based on mutual trust.

He added: “This is about understanding what people want and complementing that with the right service and the right technology. We’ve found customers react really positively to this.”

Molnar will launch his UK unit into a field that is far from crowded.

UK rivals

Earlier this month, New Zealand payment provider Laybuy began trading in the UK, in a partnership with Footasylum to offer buy-now-pay-later sales to customers. Laybuy has more than 3,700 retail partners in Australasia.

Laybuy runs credit checks, and successful customers are given a limit, ranging from £60 to £720. Shoppers pay for their purchases over six weekly installments.

It will compete against Swedish fintech Klarna, which currently has more than 1.4 million active users in the UK. However, the business, which counts TopShop and Asos among its clients, plans to boost this to 4 million shoppers by the end of the year.

Klarna does not run full credit checks. It offers shoppers two options. They can pay a third of the price at point of sale and stagger the rest, or they can stagger the whole payment.

Retail experts says shoppers have become used to a variety of ways to pay for their purchases - from buy-now-pay-later, Apple and Android Pay to contactless card payments.

Retailers say shoppers who use buy-now-pay-later options spend 80 per cent to 90 per cent more compared to other payment types.  

It seems as if Molnar’s UK Afterpay operations will find a welcome from shoppers and retailers, in a deep market without a dominant incumbent.

Nicholas Molnar will speak at the AltFi Australasia Summit at Sydney's Dolthouse on the 15th April.

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