The ability to buy now, pay later (BNPL) online and in-store has become popular in recent years. Afterpay Ltd. is one of a growing number of BNPL payment services that retailers offer customers at checkout.

10.1% of Digital Commerce 360’s Top 1000 online retailers offered Afterpay in 2021. This is up from 8.2% in 2020.

What is Afterpay?

Afterpay is a buy-now-pay-later vendor that splits up the total purchase amount into four biweekly payments. It does not perform a credit check and uses an algorithm to approve customers. It does not state the exact reason for when a customer is denied a loan. Consumers can be rejected because there are insufficient funds available on the card the customer is using. Or the shopping cart value is too high. A customer may be approved after removing items and lowering the value of the shopping cart. Rejection is also possible if the customer is new to Afterpay and tries to make multiple purchases within six weeks. Finally, the customer can be rejected if they have too many loans with Afterpay.

Should your business use Afterpay?

BNPL usage has grown tremendously from 2019-2021. According to a Consumer Financial Protection Bureau report published in Sept. 2022, the five surveyed buy-now-pay-later companies: Affirm, Afterpay, Klarna, PayPal and Zip, reported a 970% increase in the amount of loans given between 2019 and 2021. Sales volume grew from $2 billion to $24.2 billion during that period. 

45.9% of Digital Commerce 360’s Top 1000 online retailers offered a BNPL option in 2021. That’s up from 28.2% in 2020. With a growing list of BNPL services, 7.4% of retailers offer two or more BNPL options. That’s up from just 1% in 2020.

How much does Afterpay cost for merchants?

Merchants receive the full order amount at time of purchase, minus the processing fee on the total order. The Afterpay processing fee is 6% plus $0.30 per transaction. There is no additional fee.

Customers must be over 18 years old and be the authorized holder of an eligible debit or credit card to use Afterpay. Purchases must be over $35. One-quarter of the total cost must be paid up front. Customers pay four installments biweekly. Afterpay freezes the account if the customer misses a payment. Consumers pay an $8 late fee. Additional $8 late fees occur each week until the balance is paid. Fees are capped at 25% of the total order amount. During this time, the consumer is unable to make additional Afterpay purchases. Afterpay can report negative activity to Equifax. 

Other BNPL providers perform a “soft” credit check, a kind of background inquiry that does not affect a person’s credit score. However, the result can affect the dollar amount the BNPL system will lend the shopper.

What is Afterpay Monthly?

Some stores are also offering Afterpay Monthly at checkout. Afterpay began offering this service in 2022. This allows consumers to pay once a month. Consumers can opt to do this over a six- to 12-month period. Retailers include Ruggable, Skims, Lord & Taylor, and Dermalogica, among others.

Is using BNPL a good idea?

BNPL is popular, particularly among younger consumers. According to a survey of 1,000 consumers during Oct. 2022 by payments vendor NMI, over two-thirds (69%) of consumers said they are “always excited to try out new payments technologies or capabilities.” Younger consumers are even more open to BNPL. According to the survey, 83% of consumers ages 18-24 and 87% of consumers ages 25-40 said they agree or strongly agree. More than half (54%) of respondents said they had made a purchase using BNPL. And only 4% said they were unfamiliar with BNPL. 

When offering BNPL at checkout, it’s better for merchants not to offer too many options as consumers value speed and convenience. Adding too many options could make the checkout process more confusing, said Peter Galvin, chief product officer at NMI.

“With potentially tougher economic times on the horizon for 2023, customers’ needs could certainly change quickly, elevating BNPL as a potential option for consumers to pay for things they could not otherwise afford,” Galvin said.

BNPL defaults

Delinquencies can negatively affect a consumer’s credit score. The Consumer Financial Protection Bureau report published in September 2022 noted that applicants approved for credit in 2021 reached 73%, up from 69% in 2020. And late fees are also more prevalent. 10.5% of consumers were charged at least one late fee in 2021, up from 7.8% in 2020. 18% of consumers aged 18-29 missed payments in 2021, according to the report.

The CFPD said it will work to ensure BNPL consumers have similar protections to credit card users “regardless of whether they use a credit card or a buy-now-pay-later loan,” said CFPB director Rohit Chopra in a statement.

Some states have taken steps to limit — or outright ban — the installments payment option. New Mexico state regulation passed in December 2022 and effective Jan. 1, 2023, prevents Afterpay from doing business in the state.

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