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Afterpay: How this 30-year-old became Australia’s youngest self-made billionaire | CNBC Make It - YouTube
Channel: CNBC International
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Nick Molnar is something of an Australian icon.
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You can’t really digest what’s happening
because a lot has happened very fast.
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The 30-year-old is credited with reinventing
the spending habits of millions of millennials,
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earning a spot on his country’s young rich
list in the process.
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My co-founder and I made a rule very early
on that we wouldn’t watch the share price.
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And now, as the pandemic supercharges his
payments business,
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its soaring stock price has shot him to billionaire status.
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My wife always says just don’t look down.
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Nick is the co-founder and co-CEO of Afterpay,
a “buy now, pay later” platform that allows
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users to stagger the cost of their purchases
over regular, interest-free installments.
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Here’s how it works: Say I want to buy
these $200 trainers,
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but don’t want to part with all the cash upfront.
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I can make an initial payment of $50, followed
by $50 every two weeks
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until the full cost is paid off.
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If I miss a repayment, I’ll be charged a
late fee and blocked from the platform until
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my payments are up to date.
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We pay the retailer the next day and then
we assume all the risk, so it’s our responsibility
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to recover the funds from the customer on
the due date.
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The business was born here in Australia back
in 2014 and in just six years has turned into
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a multibillion-dollar public company.
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It now has more than 11 million active users
and almost 64,000 merchants.
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From a little idea ... it’s been amazing
to see it really catch on.
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Nick, a commerce graduate from the University
of Sydney,
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noticed that young people’s spending habits
were changing.
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His theory?
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That young people are growing skeptical
of traditional financial products,
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like credit cards, which can lead to spiraling debts.
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So Nick teamed up with co-founder Anthony
Eisen, an investment officer, 18 years his senior,
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to create a millennial-friendly alternative for deferred payments.
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I actually started Afterpay with my neighbor.
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Anthony and I got to know each other and we
started speaking about this trend
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that I’d seen growing up in the 2008 Financial Crisis.
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So, becoming an adult during that period of
time was pretty telling when you saw parents,
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or friends of parents, lose their jobs.
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And essentially, the millennial cohort as
a whole said I prefer to spend my own money,
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I’d prefer to spend on a debit card as compared
to a credit card.
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According to a survey, just one in three adults
aged 18 to 29 owned a credit card.
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That compares to more than half of 30 to 49-year-olds
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and around two-thirds of those aged 50 and above.
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After launching in late 2014, the business
saw quick growth.
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Cash-tight consumers liked the four equal
installments model, while retailers,
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keen to boost sales, were happy to pay a small
commission to get on the platform.
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Our thought process was, how do you turn this
completely on its head.
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Where, rather than charging the consumer,
you charge the retailer a small fee.
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Within two years, Afterpay managed to raise
$18 million on the Australian Securities Exchange
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in a heavily oversubscribed initial public offering.
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Even the Kardashian sisters are fans.
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An endorsement from Kim Kardashian on her
social media accounts in 2018 to her millions of followers,
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boosted the company’s international profile
among millennials and Gen Z.
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Her sister’s cosmetic brand, Kylie Skin, is
now one of thousands of major retailers,
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including Lululemon and Adidas, that have piled
onto the platform as consumer habits evolve.
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During the spring lockdowns, Visa credit card
transactions in the U.S.
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fell by more than 30% year-on-year.
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While debit card transactions also plunged
in the same period, they recovered quickly in May,
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as consumers piled on retail and home
improvement goods during their stay indoors.
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If you look at what’s transpiring in the
current pandemic, similar to what we saw in
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the 2008 Financial Crisis, there’s this
distinct shift away from credit to debit cards.
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That has also supercharged Afterpay’s growth.
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After dropping to A$8 in March 2020, the share
price was up 1,300%
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to hit a high of A$105 in November.
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Meanwhile in May, Chinese tech giant Tencent
paid more than $200 million
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for a 5% stake in the company.
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That has made Afterpay one of the hottest
stocks in Australia and catapulted
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both Nick and Anthony – who each own 7% stakes –
to billionaire status.
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Sometimes the share price goes up or goes down.
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I don’t think it means we’re any better
or worse business over those periods of time.
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Morgan Stanley is now predicting the stock
could hit A$120 by the end of 2020.
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Afterpay’s rapid growth hasn’t been entirely
well-received, though.
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Critics have argued that the platform encourages
excessive and unsustainable consumer spending.
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Currently, buy now, pay later platforms such
as Afterpay, Affirm and Klarna
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fall outside of consumer credit laws in most countries.
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Hianyang Chan, a Sydney-based senior consultant
at market research firm Euromonitor, told me more.
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In one angle, we can position it as how buy
now, pay later platforms allow consumers to
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be more conscious and cautious about their spending.
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But at the same time, it can also be seen
in another manner where, because of the lack
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of regulations, it might also put vulnerable
people in a position where they might be spending
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more than what they actually have.
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Afterpay reports that 90% of its transactions
are paid on time.
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Overall, late fees accounted for less than
14% of the company’s total income in 2020,
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with the remainder coming from merchant fees
– the 4 to 6% commission it charges retailers.
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The most important point about our business
that many aren’t too familiar with is that,
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the moment someone goes late on one
installment payment,
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they can’t keep shopping until they pay that late
payment back.
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Regulators are also concerned that small businesses
are unable to absorb the merchant fees
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as easily as larger businesses, hurting competition.
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I think the regulatory bodies are seeing not
only how can we protect the consumers,
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but also how can we protect the merchants as well.
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I think this is something that is going to
be an ongoing conversation for many years to come.
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Nick said the company is currently in voluntary
discussions with regulators about such concerns.
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Even as the industry continues to grow apace,
Afterpay has yet to turn in a profit.
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In 2020, Afterpay’s revenue doubled to $382
million while losses halved to $16.8 million.
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The business is now focused on driving that
growth forward.
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Key targets for that include the U.S., the U.K. and Europe.
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To that end, Nick will be based in the States
to lead their international expansion,
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while his co-CEO Anthony will be based in Australia.
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Different regions are in different phases of growth.
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In Australia, one in three millennials use
our service every month.
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In the U.S., we processed over $4 billion
of volume in the past 12 months.
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But it’s our second full year and we’re
really just getting started.
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