A Critical Look into the "Buy Now, Pay Later" Scheme

The allure of credit payment. Sebastien Thibault, All Rights Reserved.

A wide range of products are becoming more available online and the Internet has transformed into a digital service platform increasingly used for purchasing. It is inevitable that people sometimes encounter upon items that they have always wanted to buy during online shopping, but are not in a situation that can justify the purchase – often times due to lack of funds or are currently at the end of their pay cycle. However, those times of delayed gratification may be over. Afterpay, the new and transformative e-commerce payment system, allows customers to purchase items now and pay it off in instalments. E-commerce payment system refers to electronic payment mechanism for online purchases (OECD, 2006). So far, the dominant method of online payment is through credit cards at over 90% of all e-commerce transactions. Afterpay adopts the ‘buy now, pay later’ scheme and works similarly to loan and credit cards, but with zero interest and instant registration.

The main role of a payment system is to transfer values and optimally, should allow quick, secure and effective transaction between retailers and consumers at the lowest cost possible (OECD, 2006). Issues around online payment systems are also often tied to the prediction of e-commerce growth, hence an optimal design of such system must lead to a positive outcome. For these reasons described, this instant and interest-free online payment system, Afterpay, raises a number of questions: Has Afterpay transform the e-commerce payment system? How does Afterpay contribute to the growth of e-commerce? If so, what are the transformative effects of Afterpay? This essay will analyse Afterpay as the new and transformative e-commerce payment system in response to those questions.


What is Afterpay?

Afterpay is an interest-free digital credit service that allows customers to purchase items now and pay it off in four equal instalments due every fortnight – both for online and in-store purchases. For instance, if a customer purchases an item for $80, then he or she will pay four transactions of $20 in a period of two months.

Unlike credit cards, customers are not charged with any fees or interests for using the service, but may be subject to missed or late penalty fees. Moreover, anyone can register to the service without the need for formal nor complicated application, as long as they are over eighteen years old, have a valid bank payment card and a resident of the available country. Afterpay is available in Australia, New Zealand and the United States.

Afterpay is not the only company in the buy now, pay later industry, but is considerably the biggest player with 1.8 million customers and 14,000 retailers, according to the ABC. Launched in 2015 and is still regarded as a startup company, Afterpay is estimated to have about $142 million unaudited revenue for the financial year.


How does Afterpay begin?

From left: David Hancock, executive director, Antohny Eisen and Nick Molnar, Afterpay co-founders. James Brickwood, All Rights Reserved.


Afterpay was developed in Australia, before launching in mid-2015, founded by Nicholas Molnar and Anthony Eisen. According to Eyers’ Financial Review article, the idea for interest-free online credit payment system of Afterpay was first coined by Molnar in 2012, that at that time was a commerce student at the University of Sydney working at a family business, before being approached by Eisen to start the company together.

Molnar was adamant that customers have a sense of constraint towards purchasing items and new technologies could provide instant gratification by sequencing payments. It is a deceptively straightforward concept based on insight into the psychology of the spending brain: customers would be more willing to spend $50 four times rather than $200 at once, and Afterpay was based on this idea. He believes that if customers are given flexibility by breaking down the price, they would perceive the price tag as discount hence encouraging purchases.

The idea is certainly supported by a 2014 survey of preference in payment method that found a third of participants preferred to pay by credit card over cash or debit card. This is because customers often feel less ‘pain of paying’ if the transaction is transparent – such as through credit – because: (1) there is a time gap between purchase and payment; (2) the purchase can be divided into multiple payments, hence people would be willing to spend more (Raghubir & Srivastava, 2008).

Since the launching, Afterpay has been expanding to variety of retail sectors, from goods to services, and from online to physical stores. Its smartphone application, launched in 2017, has also been downloaded by more than 1 million users.


The business model of Afterpay’s buy now, pay later

The concept of ‘business model’ is defined as the structure of a firm’s operation that is distinctly different in creating and capturing value (Mikhalkina & Cabantous, 2015). Hence, for a company to have a distinctly different or ‘iconic’ business model, it has to be innovative and should essentially contribute to the disruption of established logics. As the biggest player in the buy now, pay later industry, Afterpay is well-known and praised for their innovative business model of instant and interest-free online credit payment system – winning the FinTech Organisation of the Year award in 2017. But at the same time with having an innovative business model, Afterpay essentially disrupted the established logic of payment system in the e-commerce industry and represented changes in means to value transactions of millenials.


How Afterpay Works. Afterpay, All Rights Reserved.


Afterpay arrives at times when an array of new e-commerce payment systems are emerging, with other ‘buy now, pay later’ payment offerings – Openpay and ZipPay – are also in the market. Although relatively young, Afterpay sets its place as the new and leading payment system and transforms the e-commerce industry with its astonishingly growth. As previously mentioned by the ABC, the company also currently holds 1.8 million customers, and its growth can be seen in the infographic below.


Afterpay’s key metrics: growth of customers. Company Reports, All Rights Reserved.


Hence, Afterpay essentially disrupted the established logic of payment in the e-commerce industry by threatening the hold that major banks and online payment method – credit cards – have over retailers and consumers. Or, in Clime’s words, “flipping the economics of credit cards on their heads”.

One arguably salient factor to the rising success of Afterpay against other payment systems is due to their iconic and appealing business model of interest-free credit payments to customers. The establish logics of credit payment is that it is acceptable for customers to be charged with interests and other extra fees to access the payment, since customers benefit from instant gratification. However, with such logics, retailers or merchants would receive full benefit upfront whilst customers would have to deal with hefty payments. So, the question then rose: why should consumers pay for something that benefits retailers more than them? According to Molnar’s theory, such question then created an aversion in using credit cards. He then built a business model of Afterpay that allows customers to avoid unnecessary extra payments such as: interest fee, unlike with credit cards, and application fees, unlike with other money lending offerings. The hefty payments are instead flipped to merchants through a fee of 4-6% per transaction. This business model has proved appealing to consumers, illustrated with the growth of Afterpay’s customers.


Afterpay’s key metrics: growth of merchants. Company Reports, All Rights Reserved.


However, Afterpay astonishing growth is not only reflected through its customers, but also its arrangement with merchants – even with the charges being flipped from customers to merchants, as illustrated in the infographic above. Afterpay generates revenue through commission paid by merchants. But then some may ask, why would merchants register with the company if they are being charged more? The answer to that is because Molnar saw an alarming statistics about the numbers of customers that never proceeded with online purchases. While online stores receive more traffic than physical stores, the generated sales were extremely limited – with customers only putting items on cart without proceeding to payments. Hence, Afterpay is helping to improve sales for retailers by attracting more customers with its iconic business model. Fashion retailer such as Princess Polly is reportedly increasing in their total sales by 20% since working with Afterpay.


The Internet Ecology of Afterpay

Afterpay is undoubtedly the major player in the ‘buy now, pay later’ industry, and perhaps a huge competitor for other established e-commerce payment systems such as credit card and debit card. To understand how Afterpay situates itself as the figurehead in the e-commerce industry, it is important to learn about the parties involved surrounding the ecology of this online business service.

The Internet ecology refers to an organised system of interactions on information technologies between participating tools, regulations, values and actors to form a highly complex operation, which eventually drive some social or political aspects in the evolution of the Internet (Looi, 2001). In the e-commerce sector, consumers are not the only factor needed to be considered – identification of other parties such as competitors, suppliers, regulatory bodies and relevant partners are also important in understanding the whole Internet ecology of Afterpay.

Although Afterpay is the current major player, identical services also exist as direct competitors, with companies such as Geneopay, Openpay and ZipPay – although Afterpay is ahead by a considerable amount of revenue. Other e-commerce payment systems such as credit cards and PayPal offer similar services and indirectly competes with Afterpay, as all being options for payment method.

As a growing business that does not identify itself as a credit service, Afterpay is currently free from any regulation by taking advantage of a “legal loophole”. The company is not regulated by consumer credit laws and does not need to comply with lending obligations applies to banks because it does not charge interest to its customers. Nevertheless, there is an ongoing debate on whether Afterpay should be regulated and treated similarly to lender and other credit services.


Below is a diagram of Afterpay’s Internet Ecology:

Infographic showing relevant parties in the Internet Ecology of Afterpay.


The Transformative Effects of Buy Now, Pay Later scheme

Consumers: Instant, Secure and Interest-Fee?

‘People should not spend money they do not have’ – a saying that is definitely easier said than done. People often encounter times when they are in need of purchasing an item but do not have the funds to proceed with payment. But Afterpay definitely transform spending behaviour, particularly online, of consumers by introducing a new business model in purchases and payment, as previously discussed. The current business model encourages people to spend more as can be seen with the growth of sales in retailers associated with Afterpay.

With its instant registration and interest-free features, Afterpay also appeals to those who are hesitant with using credit cards – hence essentially disrupting and threatening the establish logics of the major method e-commerce payment system. This can be seen with its optimal system that organised quick, easy and effective value transactions while imposing minimum costs to customers (OECD, 2006).

Moreover, Afterpay is relatively more secure compared to credit card. Because credit card is not initially designed for online payments, it has more risks in security due to customers giving out their name, credit card numbers and expiration dates to merchants (OECD, 2006). Afterpay acts as the ‘middleman’ in this transaction, hence having a lower risk as an online payment system for customers. Financial information stays with mediating services like Afterpay and is not transmitted to merchants. Hence, buyers will only have to disclose their financial information to one company rather than to multiple retailers in every purchase. But at the same time, this gives more power to Afterpay in collecting data of the financial information of millions of customers. Since the company is relatively new, there has yet been known if Afterpay is using these information purposes other than as stated.


Retailers: Brighter future of E-commerce?

Issues around online payment system are often tied to the prediction of e-commerce growth (OECD, 2006). It is evident that granting short-term interest-free loan stimulates more sales as opposed to advance payment (Li et al., 2018). But at the same time, the longer the credit period, the higher the default risk – such as with extra costs of interest or maintenance fees. Afterpay’s credit period is relatively short and strict to schedule, as opposed to its competitors: ZipPay (up to 6 months), ZipMoney (up to 3 months), and OpenPay (up to 12 months). Hence, other than being interest-free, Afterpay’s business model is relatively straightforward and low risk, which probably also contributes to the growth of sales, customers and associated merchants and will essentially lead to a brighter future of E-commerce industry.



Overall, it is evident that Afterpay has been an influential model of internet transformation. It has essentially transformed value transaction behaviour and disrupted the establish logics of e-commerce payment systems. With the growing e-commerce industry and living in this digital age, it is extremely important to understand the changes Afterpay brings to the processes of buying and selling.



Afterpay [website]. Retrieved from

Chanticleer. (2018, January 16). Afterpay becomes powerful payments disrupter. Financial Review. Retrieved from

Clime. (2018, July 12). The Next Australian Global Success Story?. Clime. Retrieved from

Elwas, M. (2019, October 19). Businesses welcome Afterpay Inquiry: Should ‘buy-now-pay-later’ be regulated?. Smart Company. Retrieved from

Eyers, J. (2018, April 12). How Afterpay’s Nick Molnar taps into Millennials’ spending habits and wallets. Financial Review. Retrieved from

Excite Media. (2016, December 15). Buy Now, Pay Later: Afterpay – The Future of E-commerce. Excite Media News. Retrieved from

Jenkins, B. (2018, May 1). Afterpay: Instant, Interest-free – too good to be true?. ABC News. Retrieved from

Li, R., Skouri, K., Teng, J. T., & Yang, W. G. (2018). Seller’s optimal replenishment policy nd payment term among advance, cash and credit payments. International Journal of Production Economics, 197, 35-42. Doi:

Looi, C. K. (2001). Enhancing Learning Ecology on the Internet. Journal of Computer Assisted Learning, 17, 13-20.

Mikhalkina, T. & Cabantous, L. (2015). Business Model Innovation: How Iconic Business Models Emerge, 33, 59-95.

OECD. (2006). Online Payment System for E-commerce. OECD Digital Economy Papers, 117, 2-35.

Raghubir, P. & Srivastava, J. (2008). Monopoly Money: The effect of payment coupling and form on spending behaviour. Journal of Experimental Psychology: Applied, 14(3). 213-225. Doi:

Yeates, C. (2018, May 15). Afterpay shares surge on US launch. The Sydney Morning Herald. Retrieved from

Yeates, C. (2018, July 19). Afterpay founders boost wealth by $110m each after shares continue surge. The Sydney Morning Herald. Retrieved from


About Celine Witarsa 3 Articles
Final year Media & Communication student at USYD, minoring in digital cultures and psychology.

Be the first to comment

Leave a Reply

Your email address will not be published.


2 − 2 =