Afterpay Ltd. is making its previously online-only buy now, pay later service available to U.S. consumers in stores.
Australia-based Afterpay, fresh off a deal with mall developer Simon Property Group to support its service in stores, announced the in-store service Tuesday. As with online purchases, Afterpay users make four equal payments using the payment card stored in their Afterpay account. Merchants, however, are immediately funded the full transaction amount minus Afterpay’s fee, which typically ranges from 4% to 6%, David Katz, Afterpay chief product officer, tells Digital Transactions News.
The in-store Afterpay uses a virtual card stored in the consumer’s smart-phone wallet. It’s available at Forever 21, Finish Lines, Levi’s, Solstice Sunglasses, and select DSW stores, among others. Afterpay says consumers who shop online and in-store spend 15% to 20% more per transaction than ones who shop online only.
Consumers initiate a transaction by tapping the card icon in the Afterpay app, which activates the Afterpay card in the Apple Pay or Google Pay wallet. They then hold the phone near the contactless-enabled point-of-sale terminal to complete the transaction. Each purchase, whether online or in-store, is split into four equal payments to be paid every two weeks. The average purchase price is $150.
Afterpay takes on all the risk, Katz says. Afterpay uses a proprietary set of risk analytics to evaluate consumers, he says, and has a loss rate average of less than 1%. “Our ability to keep our losses very low is the secret sauce of Afterpay,” Katz says. Afterpay performs no credit checks and does not report to the credit bureaus.
Merchants like Afterpay because they avoid the risk of taking on installment payments and are immediately funded for purchases. Additionally, the service brings them new customers who typically make repeat purchases. “There’s something about this model that strikes people as a little bit magical,” Katz says. “We’re taking on the risk and bringing them a higher average over value and a higher conversion rate.” Conversion rates may jump as much as 22% when a merchant deploys Afterpay, he says.
Afterpay, which started in 2014 in Australia, launched in the United States in 2018 just as the point-of-sale installment-lending business was heating up with entries from startups like Affirm Inc. and from Visa Inc. and Mastercard Inc. Despite the increasingly crowded market, Afterpay to date has 5 million active U.S. customers. Its in-store service launched in 2016 in Australia and New Zealand. Afterpay in-store requires no integration with the merchant’s POS system since it uses existing mobile wallet rails to house the virtual card.