What Is Afterpay & How Does It Work?
Buy now pay later providers such as Afterpay make it easy for your customers to finance large purchases and may increase your bottom line.
As a small business owner with an eCommerce site, you may be wondering how Afterpay for business works and how it can boost your sales!
In this article, we’ll discuss how Afterpay for business works, how it’s different from other buy now, pay later (BNFL) options, and whether Afterpay is right for your eCommerce business.
Table of Contents
What Is Afterpay?
Afterpay is a buy now, pay later option that allows users to make a purchase, then pay for it in four biweekly installments without needing to go through a credit approval process. Afterpay pays participating merchants the total purchase amount upfront minus merchant fees.
Why Use Afterpay At Checkout?
The world of eCommerce is now laser-focused on the customer experience. Buy now, pay later (BNPL) is appealing to your customers because it adds a layer of flexibility in terms of payment options. Flexibility and the ability to put less money down at the time of purchase make customers feel more comfortable with a larger purchase price.
BNPL also helps individuals budget for their expenses. One-time purchases, whether small or large, are now just bills to fit into the monthly budget, much like a subscription. Shoppers used to subscription-based bills are much more open to short-term financing options like this.
Afterpay doesn’t conduct credit checks like competitors Klarna and PayPal Pay In 4 do. This allows your business to reach customers who may not have the best credit scores but are ready to finance their purchases.
According to a September 2021 study commissioned by Afterpay and prepared by Accenture, Afterpay has:
- Increased the average online shopping cart size by 17% compared to pre-Afterpay levels
- Helped merchants increase their profits by 11% compared to pre-Afterpay levels
- Connected the average merchant with 13% more new customers
- Generated $8.2 billion in total sales for 26,000 US merchants in 2021
Shoppers who use Afterpay shop +50% more frequently than those who do not (“Quantifying The Incremental Impact of Afterpay” Mastercard 2021), spend +40% more than those who do not use Afterpay (Afterpay FY2020 Presentation, Mngmt Estimates), and the BNPL service attracts over 19 million global customers (Block Q4’21 Earnings Call).
Whether your customers using Afterpay repay their purchases in full or miss payments, merchants are always paid the entirety of the purchase price upfront, minus Afterpay’s merchant fees. Fees include a flat rate of $0.30 and a variable 4-6% commission rate per transaction completed with the BNPL provider.
There are a few downsides to offering customer financing through Afterpay. Unlike BNPL providers such as Affirm, Afterpay charges late fees for missed payments, and the late payment structure is not very well understood. Users risk being charged with both late fees and Non-Sufficient Funds (NSF) fees from their bank if Afterpay automatically tries (and fails) to withdraw an installment payment from their account.
Customers also do not know upfront how much credit they will be approved for when they apply for a short-term loan, so they’re not sure whether Afterpay will cover the entirety of the purchase they want to finance.
The merchant acceptance process is not very transparent, so some sellers are denied access to the service without understanding why. The merchant payout process may take longer than it does for other BNPL providers. Also, variable fees are dependent on sales volume. If you are a smaller retailer, you may pay more than you would pay other BNPL providers in commission fees.
Platforms That Integrate With Afterpay
You can add Afterpay as a payment method, just like other payment gateways, such as PayPal. Simply log onto your website’s admin portal and add Afterpay as a payment method.
Can’t find your POS or eCommerce provider on the list? No worries! Afterpay offers customized options for businesses with their own developers. You’ll need to reach out to them directly to make sure your business qualifies.
Afterpay also offers tech support for every step of the integration process, including maintenance once the integration has been completed.
How Does Afterpay Work For Customers?
At checkout, your customer applies for a short-term Afterpay loan. They are approved for a certain loan amount, which may or may not cover the entirety of their purchase amount.
Here is an example of how the Afterpay application process works for your customers.
How To Add Afterpay Buy Now Pay Later To Checkout
To add Afterpay to your online checkout, apply for an Afterpay merchant account.
Afterpay merchants may only sell goods, not services. Merchants selling electronics, medicines, dangerous goods, or goods that customers need to be 18 or older to consume will be denied by Afterpay. If your customers will not receive their products within 14 days, you will not qualify for Afterpay merchant services. This is to reduce the amount of “risk” Afterpay takes on.
Once your merchant application is accepted, integrate Afterpay and Afterpay on-site messaging into your website.
Adding Afterpay To A Square Store
Since Square Inc. acquired Afterpay, Square has integrated the BNPL solution into its Seller ecosystem. The Seller ecosystem combines hardware, software, and financial services to help merchants manage their businesses. With Afterpay, Square store owners of any size business can offer customers a way to pay for smaller purchases over time.
How To Add Afterpay To A Shopify Store
Should You Add Afterpay To Your Shop?
BNPL options are expanding, especially in the online marketplace. They are most widely used by millennial and Gen Z buyers, so they are only set to grow in popularity in the coming years. BNPL services are a must-have if you want to increase overall sales, decrease cart abandonment, and stay competitive in eCommerce.
If your online store caters to younger buyers who may not have good enough credit to be approved for a short-term loan, and your average order amounts do not exceed $2,000, Afterpay may be the right BNPL provider for your business.
Afterpay only works with businesses selling physical items that will ship quickly. If your store offers pre-orders or items do not ship quickly, you may not get approved for Afterpay. Smaller businesses are charged higher commission rates compared to larger ones.
Take all of this into consideration when applying for an Afterpay merchant account. Don’t think Afterpay is the right BNPL option for you? Read our article to learn more about other providers we recommend.