While installment loan products were not quite unheard of in the U.S. five or six years ago, they were quite rare. At that time, the U.S. market for retail credit was largely occupied by store-branded cards and revolving credit accounts. But as millennials’ and Gen Z consumers’ enthusiasm for store cards has cooled, a host of startups have stepped into the market to offer installment financing at the point of sale (POS) as an alternative product.
But, as Afterpay Co-founder and CEO Anthony Eisen told Karen Webster in the second half of their “How We Did It” conversation about the company’s U.S. launch, the products that emerged have had some similarities. In general, he noted, they tended to be pitched to big-ticket, once- or twice-in-a-lifetime purchases like appliances, travel, furnishings and the like.
And they were very much credit products — more transparent and easily understood than revolving credit store cards, but still offering long loan terms and interest fees. There is nothing wrong with that kind of product, Eisen noted, but it is not what Afterpay built for its founding day in Australia, nor what it is hoping to offer.
“You'll never see Afterpay offering loans to people that extend over many years and reflect things that people want to buy once or twice in a lifetime,” said Eisen. “We're there for those lifestyle categories and the things that are really important to customers that they don't want to get into debt around — that's our purpose.”
What brought Afterpay to the U.S. market two years ago, he noted, was basically an invitation from their merchants — because there was no comparable product already existing there. That didn’t necessarily make the launch smooth sailing — there are the standard regulatory challenges in entering a new market, as well as the necessity of making sure their tech stack was fully loaded and ready to scale into a market that is much larger than Australia in all dimensions. And because their service is novel, there was the need to offer simple and transparent education to both prospective customers and potential business partners.
So far, so good, said Eisen. In fact, that launch into the U.S. has exceeded initial expectations in terms of merchant and customer acquisition — a fact that he largely attributes to starting in the right place in the market and making the right offer at the right time for both sides of their platform.
The Right Vertical
Applying the lessons they learned in Australia, Afterpay began in the beauty and apparel sectors in the U.S. The goal was to build a presence in the areas that are important to customers in terms of their routine purchases — and beauty and wellness, particularly in the U.S., offers a remarkably deep opportunity. The U.S. market in those two areas alone, Eisen noted, is more than four times the size of the entire Australian eCommerce realm.
And that opportunity will expand — in Australia, they are pretty well-diversified across verticals, Eisen pointed out. But the same basic opportunity exists in the U.S. — to both establish a presence and to make a quick and noticeable difference to customers’ (especially millennials’) financial lives. In short, said Eisen, it is an excellent place to enter the market and quickly grow scale with a wide swath of merchants and brands.
The big brands are important, of course, but for Afterpay, discovery of small- to medium-sized businesses and mid-market businesses is also a priority — and the Afterpay customer tends to tap the brand for more than just financing their purchases.
“We've tried to encourage a mix of retailers across our platform,” said Eisen. “If you look at the over 40,000 retailers we have on the platform, we’ve got all the very big brands you'd expect, but also thousands of smaller businesses. The ability for Afterpay to reach customers for those businesses has been a huge advantage to them, because we drive a lot of traffic.”
And that traffic comes ready to shop.
A Better Offering All Around
Consumers, Eisen noted, want spending flexibility — they don’t necessarily want credit products, particularly complex ones that require using a specialized calculator to figure out interest. Merchants want to offer up that flexibility, because at the end of the day, it serves two purposes: It brings more customers to the shop and makes them more likely to spend more while they are there.
“What we found and continued to deliver was significant incrementality, measured by increased basket sizes and average order value, and also in repeat transactions, as well as in providing for lower returns,” Eisen said. These are all things merchants want, he noted, and Afterpay’s goal in the U.S., Australia and worldwide is to be the bridge between what the merchant and consumers want by taking on the risk and making the interactive path easier.
It won’t be easy, Eisen admitted — growth is always challenging, because every market is slightly different, and identifying and pitching to local needs is always a custom build. That said, he believes it is a product worth expanding.