Nick Molnar is something of an Australian icon.
You can’t really digest what’s happening because a lot has happened very fast.
The 30-year-old is credited with reinventing the spending habits of millions of millennials,
earning a spot on his country’s young rich list in the process.
My co-founder and I made a rule very early on that we wouldn’t watch the share price.
And now, as the pandemic supercharges his payments business,
its soaring stock price has shot him to billionaire status.
My wife always says just don’t look down.
Nick is the co-founder and co-CEO of Afterpay, a “buy now, pay later” platform that allows
users to stagger the cost of their purchases over regular, interest-free installments.
Here’s how it works: Say I want to buy these $200 trainers,
but don’t want to part with all the cash upfront.
I can make an initial payment of $50, followed by $50 every two weeks
until the full cost is paid off.
If I miss a repayment, I’ll be charged a late fee and blocked from the platform until
my payments are up to date.
We pay the retailer the next day and then we assume all the risk, so it’s our responsibility
to recover the funds from the customer on the due date.
The business was born here in Australia back in 2014 and in just six years has turned into
a multibillion-dollar public company.
It now has more than 11 million active users and almost 64,000 merchants.
From a little idea ... it’s been amazing to see it really catch on.
Nick, a commerce graduate from the University of Sydney,
noticed that young people’s spending habits were changing.
His theory?
That young people are growing skeptical of traditional financial products,
like credit cards, which can lead to spiraling debts.
So Nick teamed up with co-founder Anthony Eisen, an investment officer, 18 years his senior,
to create a millennial-friendly alternative for deferred payments.
I actually started Afterpay with my neighbor.
Anthony and I got to know each other and we started speaking about this trend
that I’d seen growing up in the 2008 Financial Crisis.
So, becoming an adult during that period of time was pretty telling when you saw parents,
or friends of parents, lose their jobs.
And essentially, the millennial cohort as a whole said I prefer to spend my own money,
I’d prefer to spend on a debit card as compared to a credit card.
According to a survey, just one in three adults aged 18 to 29 owned a credit card.
That compares to more than half of 30 to 49-year-olds
and around two-thirds of those aged 50 and above.
After launching in late 2014, the business saw quick growth.
Cash-tight consumers liked the four equal installments model, while retailers,
keen to boost sales, were happy to pay a small commission to get on the platform.
Our thought process was, how do you turn this completely on its head.
Where, rather than charging the consumer, you charge the retailer a small fee.
Within two years, Afterpay managed to raise $18 million on the Australian Securities Exchange
in a heavily oversubscribed initial public offering.
Even the Kardashian sisters are fans.
An endorsement from Kim Kardashian on her social media accounts in 2018 to her millions of followers,
boosted the company’s international profile among millennials and Gen Z.
Her sister’s cosmetic brand, Kylie Skin, is now one of thousands of major retailers,
including Lululemon and Adidas, that have piled onto the platform as consumer habits evolve.
During the spring lockdowns, Visa credit card transactions in the U.S.
fell by more than 30% year-on-year.
While debit card transactions also plunged in the same period, they recovered quickly in May,
as consumers piled on retail and home improvement goods during their stay indoors.
If you look at what’s transpiring in the current pandemic, similar to what we saw in
the 2008 Financial Crisis, there’s this distinct shift away from credit to debit cards.
That has also supercharged Afterpay’s growth.
After dropping to A$8 in March 2020, the share price was up 1,300%
to hit a high of A$105 in November.
Meanwhile in May, Chinese tech giant Tencent paid more than $200 million
for a 5% stake in the company.
That has made Afterpay one of the hottest stocks in Australia and catapulted
both Nick and Anthony – who each own 7% stakes – to billionaire status.
Sometimes the share price goes up or goes down.
I don’t think it means we’re any better or worse business over those periods of time.
Morgan Stanley is now predicting the stock could hit A$120 by the end of 2020.
Afterpay’s rapid growth hasn’t been entirely well-received, though.
Critics have argued that the platform encourages excessive and unsustainable consumer spending.
Currently, buy now, pay later platforms such as Afterpay, Affirm and Klarna
fall outside of consumer credit laws in most countries.
Hianyang Chan, a Sydney-based senior consultant at market research firm Euromonitor, told me more.
In one angle, we can position it as how buy now, pay later platforms allow consumers to
be more conscious and cautious about their spending.
But at the same time, it can also be seen in another manner where, because of the lack
of regulations, it might also put vulnerable people in a position where they might be spending
more than what they actually have.
Afterpay reports that 90% of its transactions are paid on time.
Overall, late fees accounted for less than 14% of the company’s total income in 2020,
with the remainder coming from merchant fees – the 4 to 6% commission it charges retailers.
The most important point about our business that many aren’t too familiar with is that,
the moment someone goes late on one installment payment,
they can’t keep shopping until they pay that late payment back.
Regulators are also concerned that small businesses are unable to absorb the merchant fees
as easily as larger businesses, hurting competition.
I think the regulatory bodies are seeing not only how can we protect the consumers,
but also how can we protect the merchants as well.
I think this is something that is going to be an ongoing conversation for many years to come.
Nick said the company is currently in voluntary discussions with regulators about such concerns.
Even as the industry continues to grow apace, Afterpay has yet to turn in a profit.
In 2020, Afterpay’s revenue doubled to $382 million while losses halved to $16.8 million.
The business is now focused on driving that growth forward.
Key targets for that include the U.S., the U.K. and Europe.
To that end, Nick will be based in the States to lead their international expansion,
while his co-CEO Anthony will be based in Australia.
Different regions are in different phases of growth.
In Australia, one in three millennials use our service every month.
In the U.S., we processed over $4 billion of volume in the past 12 months.
But it’s our second full year and we’re really just getting started.