Afterpay makes money by charging merchants transaction fees, late payment penalties, and cost-per-click advertising. The firm also gets revenue from its foreign branches, including Clearpay in the United Kingdom, which it manages.
The following section will only discuss Afterpay’s income since its foreign affiliates operate on similar profitability principles.
As previously said, Customers are not charged any interest or additional costs to pay via instalments with Afterpay. Instead, its merchant partners are the ones who reimburse the firm for each transaction made through its payment gateway.
On every transaction, On-demand Payments applies a 30-cent flat fee. Merchants are also charged with a variable charge that can reach up to 6 per cent. The fee is comparable to those offered by rivals Quadpay and Sezzle.
The fee is determined by the value and quantity a merchant can sell. The lower fees are, the more a merchant sells.
There are several reasons why companies may want to provide a ‘Buy Now, Pay Later’ option on their platform. First, Afterpay assumes the risk of payment failure while performing debt collection action is required.
Second, Afterpay claims that the average order value for its instalment plans rises by 10 to 20 per cent as a result of these features.
Finally, afterpay is a well-known payment option that frequently results in more consumers and greater conversion rates. These customers also tend to return fewer items on average.
Afterpay’s parent company, Afterpay Ltd., earns the bulk of its revenue from merchant commissions.
Late Payment Fees
Late payment fees are the second source of income. These are charged when a customer does not pay his or her bill on time. The due date is usually established in the invoice.
Afterpay will try to automatically withdraw the payment from your customer’s debit or credit card if payment is not made on time. An initial late fee of $10 is levied. A further $7 charge is applied every time the invoice remains outstanding beyond the 7-day mark.
The late payment fee on orders below $40 is limited to $10. Late payments over the $40 mark are subject to fines of up to $68. Revenue from overdue payment charges has been on a downward trend in recent years.
Cost Per Click Advertising
Afterpay launched in-app advertising for its merchant partners in August 2021, allowing them to advertise their own offers. The advertisements will be shown within Afterpay’s Android and iOS apps. Through cost-per-click (CPC) advertising, the firm generates revenue.
When a consumer clicks on one of the sponsored locations, Afterpay receives a payment from the merchant. Many merchants may find that advertising on Afterpay’s app is a highly worthwhile alternative for increasing sales due to its millions of downloads.