Australia's Afterpay redesigns its payment app for U.S. shoppers

Afterpay has launched a version of its online installment payment method for in-store use in the U.S. by leveraging Apple Pay and Google Pay.

Afterpay’s U.S. in-store launch is an overhaul of the version available in Australia and New Zealand, which was first launched in 2016. In those countries, Afterpay uses bar codes that the retailers need to scan to enable the in-store payment. In the U.S., customers will add a virtual card that is issued by Marqeta on the Visa network to their mobile wallet on their iPhone or Android-based phone. Forever 21, Fresh, Skechers and Solstice Sunglasses are among the first retailers to offer this solution.

“Our experience has shown that 40% of our Australian customers shop with Afterpay in-store. We think that this omni-channel payment flexibility will resonate with our U.S. customers as well," said Alex Fisher, head of in-store, U.S., at Afterpay, which is based in Melbourne, Australia.

Afterpay’s in-store offering represented 24% of total Australia and New Zealand underlying sales at the end of the 2019 calendar year with almost 40,000 storefronts offering the service. Afterpay came to the U.S. market in 2018 with an online-only version of its product.

The category of buy now, pay later has been gaining significant strength for the last few years, particularly as many competitors such as Klarna, Affirm and PayPal Credit have focused on the digital retail channel, which tends to have more younger consumers, Gen Z and millennials, and where the need for payment flexibility is very high.

However, Afterpay takes a different approach to offering credit at the point of sale. Afterpay allows a customer to make a purchase and pay for it over time with their debit card. The customer pays 25% of the total transaction value at time of purchase and then the remaining 75% is split between three payments over six weeks, billed in two-week intervals with each payment made using the debit card. While credit cards can be used, Afterpay reported that 89% of its U.S. customers are loading a debit card into the Afterpay app.

The move in offering a physical POS payment option is part of Afterpay’s long-term road map to enable multichannel payments for both its customers and merchants. The company has no plans to issue a physical card in the future and will at some point replace the bar code system currently used in Australia and New Zealand. The U.S. version is intended to also be used in future markets.

Afterpay had 9.9 million active on June 30, 2020, the end of its 2020 fiscal 2020 year, with the bulk coming from the U.S. — about 3.8 million.

“There were a few reasons that drove this new in-store payment launch,” said David Katz, chief product officer at Afterpay. “The functionality is completely new, enabling our customers to have the same flexibility of our online payments now in-store. The second is that it leverages existing technology in order to ‘tap to transact’ which comes from our partnerships with Apple and Google. There is no merchant integration needed. Finally, as stores begin to reopen and recover from the pandemic, this is a new payment offering that they can use to entice new customers to shop in their stores.”