AfterPay, my notes

AfterPay, my notes

I had less than a 1% position at the end of December and it has now about tripled to 2.8% of my portfolio. It’s price has risen during the month of January by 26% in US dollars and by 32% in constant currency (Australian dollars).

Afterpay’s symbols are APT in Australia on the ASX, and AFTPF in the US.

Here are my notes on Ant’s post in December, which got me interested. His post is shortened and paraphrased, and any mistakes would thus be mine.

Afterpay is a buy now, pay later, fintech player that has come to dominate Australia and New Zealand (ANZ) and is now taking US and UK by storm with designs on further global expansion including: Canada, Europe and Asia. It provides customers an installment purchasing offering over 4 equal monthly payments. It actually provides this plan as a service for merchants both online and offline.

Afterpay recently released its Black Friday, Cyber Monday (BFCM) performance update, which included growth in underlying sales of 160% and growth in new customers of 160% as well, yoy and underlying sales for the 4-day BFCM period of $160 million.

Its customer count stands at 6.6 million, with active merchants at 42,500, and has achieved underlying sales of $3.7 billion for the first 5 months of the 2020 fiscal year (to end of Nov 2019) equivalent to $8.5 billion in annualised spend based on October’s performance.

Previously they provided an update for the first 4 months of the fiscal year which included:
Revenues up 110% to $2.7 billion (yoy)
Active customers up 137% to 6.1 million (yoy)
Active Merchants up 96% to 39,450

Whilst also announcing deals with:
eBay in Australia
Visa in the USA
Mastercard in Australia & NZ

In Australia/New Zealand, which is Afterpay’s most mature market, purchasing frequency, loss rates, and spend are all improving in FY 2020

The spend of customer cohorts onboarded in previous years now at:
7x for 2019 FY cohort
14 for 2018 FY cohort
22x for 2015-17 cohort

Additionally - it has repeated its ANZ penetration success in US in less than half the time and is even further ahead of the curve with its UK launch.

Afterpay’s annual results record have delivered consistent meteoric growth:

Underlying Sales:
2016 $ 37 million
2017 $ 561 million (+1405%)
2018 $ 2,200 million (+ 289%)
2019 $ 5,200 million (+ 140%)

Total Income (Revenue):
2016 $ 2 million
2017 $ 29 million (+1535%)
2018 $ 117 million (+ 302%)
2019 $ 252 million (+ 115%)

On a valuation basis, Afterpay’s Market Cap stands at 1.5x ttm underlying sales and 30x ttm total revenue, which for a company growing at over 100% is remarkable whilst enjoying a $6 trillion TAM opportunity in the current ANZ/UK/US geographies alone. If one were to add Canada, Europe, and developed Asia, that would increase further as would the addition of developing Asia where affordability and with it funding is a purchasing barrier to everything. As an example of where this could go - in China where fintech adoption is way ahead of the rest of the world installment purchasing has reached 40-60% of transactions.

I believe Afterpay has the momentum, performance and valuation that will allow it to progress substantially in 2020 with the list of announcements (already released) all to be executed in the near term and more together with geographic roll out as well as a potential US listing.

Saul: So I went back and looked at their last complete earnings report, from August, which gave fiscal 2019 (June) yearly results. All figures are in Australian dollars.

I have interpreted Australian terms into US language. When they refer to statutory figures, I interpret them as Australian GAAP equivalent. When they say Pro Forma, I interpret that as Adjusted. When they say total income it means total revenue, as well as I can figure it out. You will see however that there are some terms I haven’t figured out.


Global underlying sales up 140% to $5.2 billion.

Run-rate is over $7.2 billion.

Active customers up 130% to 4.6 million at end of June, and over 5.2 million currently (end of Aug).

On-boarding over 12,500 new customers per day.

Active merchants up 101%, to 32,300 at end of June, and 35,300 currently (end of Aug).

US and UK growth exceeding expectations - major new merchant brands continue to on-board.

US underlying sales of nearly $1 billion in fiscal year

US Run rate over $1.7 billion.

Over 200,000 UK customers on-boarded in the first 15 weeks, higher than the US at the same time post-launch.

Strategic partnership with VISA to support future expansion and platform innovation in the US.
Australia and New Zealand strong growth continues – instore growing strongly with over $1 billion of underlying sales since inception and represents a significant growth opportunity.

High customer Net Promoter Score (NPS), and purchasing frequency, driving customer lifetime value and stable margin performance.

Gross losses reduced to 1.1% in FY19 from 1.5% in FY18.

Total adj revenue of $252 million, up 115%, and Afterpay Net Transaction Margin (NTM) of $126.1 million, up 126%.

Adj EBITDA stable at $35.5 million, in spite of international start-up investment.
Underlying free cash flow of $33 million, reflecting high return on capital employed (ROCE) business model, and organically adding to balance sheet growth capacity.

Strong balance sheet to scale and compete globally - Cash on hand over $230 million, and fully undrawn receivables finance facilities of $947 million. Capable of scaling underlying sales in excess of $16 billion above current run-rate assuming conservative gearing levels.

Organisational and governance changes being implemented, including transition to a majority independent Board.

Financial Performance
Adj total revenue for the Group up 91% to $272.5 million, driven by strong performance in the Afterpay business.

Adj total revenue for the Afterpay business up 115% to $252 million.

Adj Merchant income margins (end of Aug) remained stable at 3.9%, a strong result in light of continued strength in Enterprise merchant underlying sales (means they aren’t having to discount much to enroll larger Enterprise merchants). The high margin SMB channel remains deep and prospective in all markets.

Adj gross losses as a percent of underlying sales improved significantly, down 0.4% to 1.1% (from 1.5%), reflecting the refinement of our customer base due to the increased frequency and lower losses associated with its high proportion of returning customers and the Group’s continued focus on risk management to reduce losses. This was especially pleasing in light of the increased contribution of the US business, which experienced higher losses.

Late fee revenue was 18.7% of total revenue, down materially from 24.4% a year ago. Late fee revenue is now just 0.9% of overall underlying sales, down from 1.3%. This was a another result in the right direction.

Pro forma NTM (Aha! Maybe it means Net Transaction Margin) as a percent of underlying sales was fairly stable at 2.4%, in spite of higher losses in the US and UK given the earlier stage of lifecycle.
Momentum in the US and UK markets exceeds Australian performance at the same point in their respective lifecycles:

? US underlying sales continued beyond expectations, increasing to almost $1 billion in the first full year of operations. Run-rate in excess of $1.7 billion.

? US merchant income margin was broadly in line with Australia and New Zealand and US adjusted NTM was positive and improved over the course of the year.

? Strong launch in the UK, exceeding US growth at same point in the life cycle. Contribution not material in FY19 (7 weeks)

Adj EBITDA of $35.5 million was in line, with strong earnings growth in Australia and New Zealand offsetting the start-up costs in the newer US and UK markets.

Statutory loss before tax (GAAP operating loss) of $44 million was impacted by one-off and non-cash items (including share-based payment expenses and the initial application of new accounting standards). Excluding these items, the adjusted operating loss would be a profit.

Underlying free cash flow, adjusting for receivables funding, remains positive ($33 million), organically adding to balance sheet capacity, and is reflective of the high cash generative nature of our platform.

Our entire receivables book has a weighted average duration of less than 30 days. This allows us to scale with reduced amounts of working capital and generate a high ROCE. Our adjusted NTM implies over 25% ROCE (annualised) in FY19.

Accelerated Mid-Term Growth Strategy
We are executing on our mid-term strategy and capturing the market opportunity in our current markets, as we scale towards our previously stated FY22 target of $20 billion ++ of GMV and NTM of 2%.

Active merchants more than doubled to over 32,300 at the end of June and are approximately 35,300 currently. The increase reflects more partnerships with large Enterprise retailers and the continued onboarding of higher margin SMBs across all regions.

Global merchant acquisition run-rate is currently over 1,900 new merchants per month.

Our customer acquisition run-rate is also accelerating – currently attracting over 12,500 new customers every day.

Length of customer tenure on our platform drives higher frequency of purchases, combined with lower loss rates, thereby improving lifetime value.

In Australia, customers who began with us three or more years ago are now transacting more than 20 times per year and early experience in the US demonstrates a frequency glidepath that is higher than Australia at the equivalent stage of lifecycle.

Even with strong new customer growth, over 95% of monthly underlying sales in Australia and New Zealand is now from returning customers.

(Saul: This is very much like recurring revenue and high net retention rates)

Low Net Transaction Losses and high NTM in Australia and New Zealand provides ‘glidepath’ for new international markets, although a greater proportion of early stage lifecycle losses and lower NTM in US and UK will be prevalent in FY20.

NPS across our Australian, New Zealand and US markets has stayed consistently above a market leading 80 points, demonstrating the appeal of our customer-centric business model and a material point of difference to not only traditional finance and payment methods but also other ‘buy-now, pay-later’ products.

• Our global technology, data and risk management capability delivers unique data insights that drive business performance and ensures that our most innovative ideas are prioritised and scaled.

• We are continuing our focus on, and investing in, innovation in FY20 - particularly in relation to our global platform and data capability to provide further value to the customer and merchant experience. A number of innovations are being piloted and/or in roll-out phase, including Variable Payment Upfront (VPUF) and Merchant Cross-Border Trade (new FX revenue stream potential).

? VPUF - this new feature, having been trialled with a key Enterprise retailer, allows customers to use their own funds to pay a higher deposit upfront - this increases the value of the transaction and conversion rate, supporting retailers without further indebting customers. Feedback to date has been positive and a wider rollout of this feature is underway globally.

Further, Afterpay has entered into agreements with VISA which will form the basis for a strategic partnership to support the development of innovative new solutions and business growth in the
The agreements will facilitate the ability for Afterpay to expand the delivery of its services to merchants and customers in a more flexible and efficient manner.

The payments and instalments markets are very large and diverse and both Afterpay and VISA see significant scope for collaboration for our mutual benefit.

Afterpay looks forward to announcing further developments arising from our arrangement with VISA during implementation stage.

US market.
Successful completion in late FY19 of a $317 million equity raising and the establishment of a US $300 million dedicated US receivables warehouse facility has solidified Afterpay’s strong balance sheet to scale and compete globally. Warehouse facilities ($947 million) are currently fully undrawn, providing capacity to significantly scale underlying sales and enhance ROE.

Current liquidity is in excess of $600 million, together with existing facilities, capable of scaling underlying sales in excess of $16 billion above current run-rate assuming conservative gearing levels.

Australia and New Zealand
Australia and New Zealand underlying sales increased 99% to $4.3 billion, almost double FY18.

Continued growth in online and strong instore growth continues with major Australian retailers onboarding.

Instore underlying sales has now exceeded $1 billion since inception and comprised 21% of the Group’s underlying sales in the second half of FY19, up from 16% in the first half of the year. With the size of the addressable instore market in Australia and New Zealand estimated to be at least 5-8x that of online retail sales, instore will continue to be a growth focus for Afterpay in Australia and New Zealand throughout FY20.

Diversification into new verticals, including the health, hair, skincare and travel sectors, continues to progress.

United States
Merchant, customer and underlying sales growth have continued to track above expectations with current run-rate in excess of $1.7 billion.

Over 6,500 merchants are onboarded or currently integrating on the platform who can access over 2.1 million active US customers.

The rate of US customer acquisition is accelerating as the network effect of our platform plays out. The US is currently acquiring 50% more new customers per day than the FY19 daily average.

Over 3.8 million retailer referrals via the Afterpay platform in July 2019, demonstrating the value proposition and increasing market opportunity for our retail partners.

Merchant revenue margin is trending in line with Australia and New Zealand and is supported by strength in the number of higher margin SMB merchants joining the platform.

Pro forma NTM contribution was positive in FY19, driven by strong merchant revenue margin and improving loss experience as our risk systems are optimised and customer base grows. We are targeting future opportunities to reduce processing costs as well as losses.

United Kingdom
Successful launch at scale into the UK market, further demonstrating the global appeal of the Afterpay platform (trading as Clearpay in the UK) and management capability to execute on our international expansion plans.
Over 200,000 active customers in the first 15 weeks of trading, higher than the US at the same time post-launch.
Continuing to add to our local presence with a best in market team of 29 professionals.
New retail partnerships, including:

Continuous Improvement
Our business model generates more money when customers pay on time - more than 95% of our transactions incur no late fees - and is built on encouraging responsible spending habits through inbuilt customer protections such as low spending limits and caps on late fees.

Over 32,000 of our merchant partnerships are with SMBs and in recognition of this, we operate a global mentorship program linking some of those SMBs with some of the world’s most successful retailers.

We continue to work with regulators, customers, retailers and industry in a collaborative and transparent manner.

Afterpay welcomed the Government’s introduction of new Product Intervention Powers that sees the industry formally regulated by ASIC.

Continued commitment to ensure our AML/CTF compliance is robust. External auditor appointed by AUSTRAC, Mr Neil Jeans of Initialism, is due to deliver an interim report by 24 September 2019 and a final report by 23 November 2019.

About Us
Afterpay Touch Group (ASX: APT) is a global technology-driven payments company with a mission to be ‘the world’s most loved way to pay’. APT comprises the Afterpay and Pay Now (Touch) services and businesses. Afterpay is driving retail innovation by allowing leading retailers to offer a ‘buy now, receive now, pay later’ service that does not require customers to enter into a traditional loan or pay any upfront fees or interest to Afterpay.

Dec 2019 - Record November, and Black Friday / Cyber Monday
Business update for the month of November 2019 as well as the Black Friday and Cyber Monday trading days.

For November we had:

Underlying Sales - $1.0 billion
Net new Customers – 0.5 million
Active Customers – 6.6 million
Active merchants – 42,500

We achieved $1.0 billion of monthly underlying sales in November, representing the highest monthly performance since inception and contributing materially to total underlying sales of $3.7 billion achieved in the first 5 months of FY2020.

• We have more than 6.6 million active customers, up approximately 0.5 million in November.
• On average, over 22,000 new customers per day joined our platform in November:

The US now has a customer base of equivalent size to Australia and New Zealand combined, after only 19 months since launch, (over 3 million).

• In the UK, more than 500,000 active customers have transacted with us in 7 months since launch.
• Australia and New Zealand continue to grow strongly in terms of both new and repeat customers.
• Our merchant portfolio and pipeline continues to grow with 42,500 active merchants now offering Afterpay to their customers.

Black Friday / Cyber Monday (BFCM) 2019
• Black Friday and Cyber Monday represented record trading days across several key performance indicators:
Underlying sales of over $160m (2 days), up over 160% from same days in 2018.
New customer growth of over 140,000 (2 days), up over 160% from same days in 2018.

Jan 2020 - Post by Sean
Afterpay’s value proposition to merchants: Merchants generally have gross margins of around 50%, but have very high fixed costs, such as rent, electricity and labour.

Afterpay effectively works as a referral service. Where merchants accept afterpay, their turnover generally increases 30%, through the introduction of Afterpay users to the business, and bringing forward afterpay users expenditure. So paying a 4% fee to achieve an increase in 30% of revenue is great value, as for every extra dollar a merchant receives in sale, 46% will go to the bottom line (excluding discounts / sales). So it is completely incorrect to say a merchant is giving away 40% of profit. Retail doesn’t work in that way.

Afterpay is not competing directly with Visa, Mastercard, Square, etc. It has a completely different value proposition. (In fact they are partnering with Mastercard and Visa in various countries.)

Competitors are all below Afterpay in terms of merchant numbers and users. There is a significant network effect in play here, as if you have more merchant options, the platform is more attractive to users, who tend to use just one app. If you have more users, it is more attractive to merchants. (In other words, they have a moat). A merchant will not care if the fee is 4% or 5% if it can increase his gross income.

Saul: All in all this seems like a potential powerhouse in the making. Which is why I took a small position in spite of the inconvenience and hassle of buying shares in Australia.

Best to you all.



Saul (or Ant or Sean) -

If I were making an AfterPay elevator pitch, is this basically a new wave version of the old layaway model where the consumer receives an item after paying it off through installments? In this case the consumer gets the item up front while the vendor gets full payment from AfterPay (minus a fee, of course). AfterPay doesn’t charge the consumer interest, but instead gets to keep the vendor fees minus whatever it has to write off for consumer defaults. AfterPay sets tighter limits and caps on consumers than credit card companies, but the interest-free payment is the hook for people to use it. Merchants benefit because they move more inventory than they would otherwise, specifically to customers who’d pay by installment but avoid credit to make the purchase. AfterPay uses a mix of cash on hand and available credit facilities as the float for fronting transactions while waiting for the payments to arrive.

Is that the gist or is that too simplistic? What have I left out? I’m just trying to make sure I fully understand the actual business transaction here.




Thanks for the write up.

One thing to note is there is limited currency risk for US investors, as the majority of revenue will generated in the US over the medium. As you rightly pointed out, the potential to expand into regions like Asia is yet to be realised, and this may change over time.

Afterpay will release their half year results in 4 weeks time.

One way to monitor progress in the US is app downloads. App Annie is showing that Afterpay remains in the top 50 shopping apps. The app category was changed from finance in December, and it was a top 25 finance app at that time. App rating in US is 4.84 (that is incredibly high), based on 23000 reviews in google play.

Some of the reviews:

“Wonderful to be able to buy things and pay later. Love it!”

“This app is the best! I’ve used it for birthdays, Christmas and anytime I want something just for me. The app is easy to use and it reminds you when your payment is due beforehand. I’ve shopped for shoes, backpacks and sunglasses! Shop on!!”

“I love this app! It’s clean, organized, and it’s not a hassle to keep up with your payments. I’ve had a ton of issues with apps like Klarna, but this is much more functional. Not to mention it works great in websites like Finish Line and Fenty Beauty. Would definitely recommend to others.”

“I first learned about this app at Christmas. I do a lot of shopping on line. I found some shirts that were kinda expensive and I really wanted to get them. I noticed the Afterpay with payments and I tried it. It divided total into 4 payments. I is great. I down loaded the app and I keep track of my payments on line. Love this, cause now I can purchase things that I couldn’t before. Thanks!”

Afterpay is to BNPL (Buy Now Pay Later) as Google is to search. When people say they are searching for something they say they are googling it. When people say the are using BNPL, the say they are Afterpaying it. Afterpay in Australia is not just a business it also now a verb.



You have pretty much nailed it.

Afterpay allows customers to bring forward purchases, and manage cashflow without the use of a credit card. Although, many clever people use both by paying via Afterpay, and paying installments via credit cards.

Afterpay also generate a tremendous market data set on buyer preferences, and potentially, this could lead to more revenue income streams (say charge merchants for customer leads - however, they need to be merchant neutral - which might be tricky).



If I were making an AfterPay elevator pitch, is this basically a new wave version of the old layaway model where the consumer receives an item after paying it off through installments?

Not layaway; but a concept that has been around as long if not longer…good 'ol fashion “Factoring”.

Merchant has a product available for sale at $100; customer purchases item $100, Merchant has a $100 receivable, AfterPay steps in and gives the merchant $96 for the $100 receivable; Merchant gets immediate cash for a $100 receivable which has been factored down to $96 and AfterPay picks up the $100 receivable for $96 and now collects the $100 from the customer. Merchant gets immediate cashflow and eliminates credit risk and collectible risk. AfterPay collects $100 on the $96 and puts $4 in their pocket.


I saw upthread someone said this is different than a credit card. But the description (elevator pitch) provided sounds just like a credit card. And the simple scenario hmcproperties provided is just like a credit card.

Maybe the difference is around consequences if the consumer doesn’t pay off the debt?

Just trying to understand the model and all it’s intricacies.

Thanks so much!



Correct me if I’m wrong but Afterpay does not immediately collect $100 from the customer. They collect $33.33 right away and then collect $33.33 the next month, then $33.33 the final month.

They are essentially a bank but instead of charging the customer interest, they collect the spread between what the customer pays and what Afterpay charges the retailer.

If it’s only 4%, that’s lower than the net interest margin that many banks collect by loaning out in which some of those loans are collateralized by real estate.

If this is the case, watch out for this one in a recession.

Please correct me if I’m wrong. 4% spread isn’t much when you don’t even do credit checks.


I will post a good primer on the AfterPay concept when I can find it again. As I recall, rates are between 4%-7%, payments by customer are 4 equal payments with no interest, but AfterPay does charge hefty late fees, the customer has to earn their way onto the platform, meaning a new AfterPay customer has to have a good repayment history to qualify for additional purchases thereby limiting some bad debt exposure.

Thanks for the great notes. I looked into Afterpay after it was brought up but I was a bit thrown off by the different terms. And only reporting official numbers every six months. I read through the reports and presentations

I put some numbers below. Not sure if they’ll be helpful, but I dug them up for my own sake so thought I would share. Teasing out the adjusted numbers was difficult only because I’m not used to the terms or reading Australian financial reports

I see how the business is different from a credit card in that the objective is to not charge the buyer a finance fee but still allow them to purchase items today. And instead charge a service fee to the store in return for them also getting cash up front.

Coincidentally I’m in New Zealand and Australia this week. Making a point to keep an eye out. I’ve seen it in several retail stores in Auckland. Simple stickers at the front door that say “Afterpay accepted” similar to how you see Visa, MC, AMEX.

Last annual report
Scroll to page 21 to see Pro Forma numbers…

Half-year report
Scroll to page 7 to get Pro Forma numbers…


“Pro Forma Total Income” (aka adjusted revenue)

           09            12       03             06
           Q1            Q2       Q3	         Q4
2018        -        60,709        -     142,345.00
2019        -    116,055.00        -   	 272,525.00
YOY growth  -        91.17%        -         91.45%

Sorry I didn’t see half-year results

           09            12       03             06
           Q1            Q2       Q3	         Q4
2018        -            -        -          35,163
2019        -            -        -   	     35,479
YOY growth  -            -        -           0.90%


Statutory Total income (aka “GAAP revenue”)

           09            12       03             06
           Q1            Q2       Q3	         Q4
2018        -     60,709.00        -     142,345.00
2019        -    112,342.00        -   	 264,112.00
YOY growth  -        85.05%        -         85.54%

Gross margin

           09            12       03             06
           Q1            Q2       Q3	         Q4
2018        -         78.54%       -         80.18%
2019        -         76.92%       -   	     77.45%

Operating margin

           09            12       03             06
           Q1            Q2       Q3	         Q4
2018        -          4.78%       -          -1.05%
2019        -        -14.75%       -   	      -12.00%

Net margin

           09            12       03             06
           Q1            Q2       Q3	         Q4
2018        -          -1.22%       -          -6.31%
2019        -         -19.79%       -         -16.58%

I think I’ll dip in and take a small position after digesting the numbers and everyone’s notes


HI 12X,

customers are supposed to pay in 4 instalments. They pay first instalment when they make the purchase. while other 3 instalments are due every 2 weeks. If they do not pay on time, they are charged late payment fee. As per the afterpay New Zealand website, customers are charged $10 late payment fee. If the instalment is not paid within 7 days of the due date, further $ 7 is charged. New customers are provided with low spending limits and they only increase limits once customers have demonstrated positive repayment behaviour over time. I live in New Zealand and it’s hugely popular here( and in Australia).

Australia Finance Industry Association’s (AFIA’s) announcement that the buy now pay later sector is working towards creation of a world- first code of practice for the growing buy now pay later sector but I think it is less likely that they will introduce credit checks.

This is my first post on the board. I am a new investor and following this board since last July ( when It started to melt-down for our stocks). I want to thank the board members as I have learnt a lot from this board.

New Fool,


I am wondering how AP can compete with companies like Affirm (check your Walmart) or even Synchrony (they have large unit offering financing solutions for merchants).

The margins in this business are really small. The typical scenario for 0% loan being merchant has to pay the fee covering the credit loss and profit.

With AP not using credit bureaus, it is almost impossible to match the credit loss (the predictive power of credit bureau data is just too high). Note that even when Affirm does not have hard inquiry they still use Experian’s data. Claiming low losses in good economy is easy, but they will be hit much harder in the downturn as they will not have through-the-cycle models. Something CapitalOne learned the hard way (and now they might have the best AI team). Last thing if you will be checking numbers - wonder how they loan loss provisions are calculated (there is a lot of changes coming with CECL, in most cases it just increases provisions needed, especially for 12+months financing products).

I will stay as away from AP as possible.


I’ll be honest…I’m trying to figure out a way to hate this company because I genuinely hate the business model of any Buy-Now-Pay-Later operation. I see these types of outfits as preying upon the poor or irresponsible.

Red Flags:

  1. Is this company even capable of withstanding a recession? Or, a higher rate environment? I feel like there is a confluence of favorable conditions (very low rates to finance receivables, economic expansion in their major markets) over the past several years that have facilitated the rapid expansion that AfterPay has achieved. With a 2.4% margin on transactions, if credit losses rose from 1.1% (in 2019) to 2.2%, nearly half of Afterpay’s revenue would be gone. Seems like a lot of leverage with a huge amount of reliance on their risk modeling.

  2. Is this a pure-play on fashion retail? On the AfterPay U.S. website, it looked like 100% of enrolled retailers were fashion and cosmetics. That looks intentional, as Australia’s Afterpay retailer list is very similar categories. Australia does branch out a bit into other retail segments (jewelry, homewares), but it’s still in the higher-end, discretionary, very elastic demand areas.

  3. There’s nothing new to see here, right? The only difference between Afterpay and any other interest-free installment plan that is already commonly available at the retailer level is that Afterpay is just centralizing the function. And, even that isn’t new–they’re just factoring receivables. So, what’s new? What’s the x-factor? Is is just their approach to risk?

Overall, it’s still an interesting play. The reduced losses borne from their risk modeling, and the fact that they tightly control customer credit lines based on payment history (sorta like they’re creating their own FICO score) is interesting, and is the only reason I’ll keep this on my watch list.



I offer the following as factual information, or at least as information that is believed to be true, without comment on the merit of Afterpay as a company or investment.

As “hmcproperties” says, Afterpay and its many competitors are just “good ol’ fashioned factoring” companies; see here for a review from a respected Australian fund manager -…

According to Roger Montgomery:

Factoring is one of the oldest forms of finance available and the economics of factoring businesses aren’t particularly attractive because factoring is not a particularly high-return business.

There is a basic relationship in investing that has always held true. High returns usually come from assuming higher risk. So how can investors in Afterpay generate high returns from what is effectively a low return factoring business?

Some professional investors might argue that the returns from Afterpay’s factoring business are in fact very high and the risks very low because small individual amounts are being assumed and the terms are very short (56 days). But if that were true, how is Afterpay able to extract such high returns when extending credit to low risk customers?

If such great returns are available from extending credit to very low risk customers, others will join the party. And that is something many investors hopeful of Afterpay’s successful leap into America might have missed.

As far as I can tell, neither Roger Montgomery nor his firm’s fund managers have changed their mind on Afterpay since the publication of that article.

Roger Montgomery then proceeds in that article to highlight some of Afterpay’s many competitors just in the relatively small Australian market. It’s a long list, but the most notable thing about it is the competitors that he leaves out (the article is more than a year old) - Klarna and Zip.

I believe (but haven’t personally verified) that the world’s biggest Buy-Now-Pay-Later (BNPL; i.e. the fancy term for consumer factoring) operator is Klarna, with the following statistics -

Total end-customers: 80 000 000
Total number of merchants: 190 000
Number of transactions per day: 1 000 000
Number of employees: 2 500
E-commerce Market Share Northern Europe: 10 %

A few other interesting facts about Klarna. One is that Visa is an investor in Klarna, so association with Visa is hardly unique to one company or another (I don’t know how many more BNPL operators, if any, Visa associates with). Another recent significant investor (~5.5% equity stake) in Klarna is Commonwealth Bank of Australia (CBA), which is the biggest of Australia’s oligopoly banks. I know that CBA has no association with any other BNPL operators. CBA has very recently integrated the Klarna service into its online banking app, which is the biggest in Australia, so CBA customers can now use the Klarna service without applying for it. Klarna may well represent the vanguard of the fee erosion that Roger Montgomery talks about, as I believe (from press articles, and not research) that Klarna doesn’t charge merchants any compulsory fee at all. OUCH!

How do Klarna statistics compare with Afterpay statistics? Afterpay has the following statistics -

Afterpay currently has around 4.3 million active customers and approximately 30,600 active retail merchants on-boarded.

That is, Klarna’s reach is multiples of Afterpay’s, both in terms of customers (i.e. consumers) and merchants.

Another interesting comparison between Klarna and Afterpay is their founding dates. Klarna was founded in 2005, so it seems to have survived (and thrived through?) the worst global recession in living memory. Afterpay, in its original form, was founded in 2015 (according to Wikipedia), so it has only operated in a favourable economic and credit environment.

Zip is smaller than Afterpay (I take this as a given, not that I’ve checked), but it has reeled in a whale, as opposed to the minnows that Afterpay lures in. Users of wouldn’t know it, but it is possible to use BNPL on’s Australian store -…

Buy now and pay at your pace using Zip on When you use ‘Pay at Your Pace with Zip’ on, Zip pays Amazon on your behalf and you can pay Zip back over time, as per the terms of your account with Zip. Amazon is not involved in the pay back process between you and Zip. doesn’t offer Afterpay or any other BNPL scheme.


In addition to other BNPL players in the market; another threat, although not as significant, is a consumer driven point-of-sale cash discount. As a customer, the merchant can sell a $100 dollar item to me for $93 as I elect to use AP or we negotiate a cash payment discount of $94 for a cash sale. A win-win-loss for merchant-customer-AfterPay.

Not that it matters, but you said:

"AfterPay, my notes

I had less than a 1% position at the end of December and it has now about tripled to 2.8% of my portfolio."

FYI, your 2019 year end post did not list AfterPay as a current holding.…

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FYI, your 2019 year end post did not list AfterPay as a current holding.

Hi RHinCT, Look in the section called LAST FOUR MONTHS REVIEW. Under December you will find the following:

“…I also bought a tiny think-about position in Afterpay (less than 1%) which I’m not really ready to discuss yet, or to consider as an actual “position”. I’m still deciding if I will keep it.”



This looks very interesting… thanks for great write-up Saul.

Even with larger comp like Klarna and the fact that this not a new trick in the industry, impressive growth numbers suggest this company does something that’s different / special.

Few questions come to my mind to share (I will also do some research and look for answers)

  • Is it that they are doing better job with the tech - online presence, app etc?
  • Or the whole space is growing rapidly? including Klarna, Zip etc.
  • How about existing US players? Are they growing as well?
  • Does Afterpay get separate referral fees or its all built into the 4%?


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For what it’s worth…my few experiences with Klarna were not so great (some of the Afterpay testimonials reflect a similar experience). I found Klarna’s process so clumsy that I will probably no longer shop with the European shoe retailer who uses it (I live in the US). With Klarna and this particular retailer, the customer has 30 days to try out the merchandise and either return it or pay for it, so it’s not quite the same as the 4 installments with Afterpay. However, the communications between Klarna and the retailer were not well coordinated which meant I had to contact both the retailer and Klarna to sort things out. Not very seamless.


Would this after pay factoring solution work for higher dollar service businesses where the receivable may be in the thousands?

Interesting concept.


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Hi Tinker,

Z1P.ASX is the one listed in ASX and provides higher dollar BNPL.