Afterpay Model and Discounts for Cash Sales

Ladrock on 11/06/2021 - 17:18

I think I have a basic understanding of how afterpay works (happy for critique):

  1. the selling company sells a product at normal price (e.g., $100) with delayed payment (accounts receivable)
  2. Afterpay buys payment obligation (e.g., for $97) and sells to someone with ability to manage effectively (for $98, makes a buck)
  3. Company agrees to selling at $97 because they get sales channel that wouldn't have otherwise been there, and sales still have margin

I appreciate the high fees for missing payments is a source of revenue but from what I have read this is not the core model.

Assuming above, I can't understand how someone paying upfront isnt getting a bad deal, and should deserve a discount. Like, if as a consumer I should make a rational decision and use Afterpay because its just better to defer payments.

All consumers should do this, but then why not just sell to us for $98 for payment on sale and cut out all this nonsense…

Or are most of Afterpay customers really living from paycheck to paycheck with their non-discretionary consumption and need this service? This model baffles me… mostly because I think if I can pay upfront then why shouldnt I be entitled to a discount?

Would love your thoughts.

Cheers

General Discussion

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Comments

  • Binge on 11/06/2021 - 17:24

    The value for the business is the additional customers who could not have otherwise or was unwilling to to pay for the full amount upfront.
    Customers get a credit line. Besides straight discounting the product would not attract the same customers and would probably cheapen the product instead of making it appear more affordable

    • adrock on 12/06/2021 - 06:24

      I suppose my thought is there are customers that wouldn't otherwise buy unless they got a discount.

      I'm seeing the business opportunity: it's called "NowPay" and if you promise you wouldn't have bought at full price then you will get 5% off?

      • Binge on 12/06/2021 - 15:50

        You're missing the point. Using your NowPay as an example, customers who can't pay full price won't buy it. AfterPay is financing like a car. Now more people can afford the product because it's only billed at a quarter of the price and payable in up to two months. That's the customers that businesses using AfterPay target. There's no reason to discount a product by 5% to people who can pay full price.

  • lolz112 on 11/06/2021 - 17:44

    It's like saying I should get a hoover cheaper if I buy from the warehouse (ie online from the store), rather than buying from a retailer that stocks a harvey norman as it cuts out the retail space, staff, overheads. In theory yes, but practically it's easier for businesses to deal with large companies offer to bring in x amount of customers who are weren't going to buy directly from the store. By keeping the prices at RRP, the retailer (aka afterpay) don't lose confidence in the brand (as they aren't undercutting) and will stock/offer their product for it.

  • Drakesy on 11/06/2021 - 17:51
    +3

    I think Afterpay's only branching out into this space as a secondary area because it's seen how Cashrewards/shopback have been able to make money off it.

    Personally I still think Afterpay is a bit of a ponzi scheme, buy the hype, sell the news style stock. There's only so much money to be made over splitting up repayments into 4 equal repayments on the hope someone will miss one and you capitalise on it. Really it's just a bank/credit corporation preying on the lowest common denominator. Yes there's money to be made, but i feel it's not as revolutionary and profitable as people make out.

    I'm happy to be proven wrong though, but until i see some dividends and a decent P/E ratio i'll remain sceptical.

    • netjock on 11/06/2021 - 21:14

      There's only so much money to be made over splitting up repayments into 4 equal repayments on the hope someone will miss one and you capitalise on it.

      If you have enough money on your debit / credit card then you won't have a problem with missing payments. The late fee is just so they don't have people who can pay not paying (for them cash flow is life).

      They make the percentages. It is basically like invoice factoring except on a tiny scale.

      BNPL been around since like at least 2000 when Harvey Normans would use Buyers Edge. Except that was for large purchases. Afterpay is after tiny transactions now.

    • adrock on 12/06/2021 - 06:34

      Investing in exploiting people's lack of ability to manage their finances feels very wrong to me, regardless of what's to be made.

      The only reason I have thought about using it is because for some reason there a lot of bargains tied to it these days…

  • Ocker on 11/06/2021 - 18:31
    +2

    The APT business model is on very shaky grounds.
    At some stage in the near future the fee they charge retailers (around 5%) will face proper scrutiny on the basis all non -users on APT are subsidising the 5% fee.
    Secondly, APT's main source of revenue is late fees and already APT has run foul of several USA states who have in place caps on such fees. If the Australian authorities also impose limits this would be a blow for APT.
    Personally I see APT with a pe of minus 480 as grossly over-valued

    • st1ng on 11/06/2021 - 20:12

      Do you have a source for "their main source of revenue is late fees"? In 2018, late fees made up a quarter of their revenue. https://www.abc.net.au/news/2018-08-24/afterpay-late-fees-24…

      • adrock on 12/06/2021 - 06:25

        I actually thought it was less than even that, but perhaps I was reading the propoganda

    • adrock on 12/06/2021 - 06:30

      "non users are subsidizing the 5% fee"

      This is the bit I find interesting. In micro econ they talk about segmenting buyer groups based on their willingness to pay. Geographic pricing like we all know about is one method, bulk ordering another.

      However these can be broken down more and more in a globalised digital economy.

      Maybe the answer to my question is non APT users DO get access to the discount because they can just use APT, earn something on the cash they hold and then consider that the discount.

      Feels clunky tho

  • dizzle on 11/06/2021 - 22:18

    It's just another form of credit card really. If you can pay less with cash instead of C/C then you can probably get the same deal with cash instead of Afterpay. However, most places don't offer these cash discounts anymore. Most that offer a discount with cash, will offer a discount if you just ask anyway.

    Lastly, there are still costs and risks involved with taking cash. My last position, I had to go to the bank everyday that I received cash (over the float amount) and because the bank was not onsite, that's 30 minutes everyday that thay pay me just to take a walk and drop off an envelope. It was probably cheaper ffor us to pay the c/c surcharge, and there's less risk of internal/external theft/loss.

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