You might have seen Afterpay spring into every retailer out there seemingly overnight. If you’re trying to decide if it will be right for your business, this guide will take you through what you need to know.
Costs
For a $1500 Afterpay transaction, the store owner receives the full $1500 upfront, minus Afterpay's fees, which include a $0.30 fixed transaction fee plus a variable commission rate (typically 4-6%) on the total sale amount.
The exact amount the store owner gets depends on their specific agreement with Afterpay, which is often based on transaction volume.
Here's a breakdown of the costs:
Fixed Transaction Fee: A standard $0.30 charge for every Afterpay transaction.
Commission Fee: A percentage of the total sale, usually between 4% and 6%.
Factors Affecting the Commission: The commission rate can vary based on your agreement with Afterpay and is sometimes lower for businesses with higher transaction volumes.
Example Calculation (using a hypothetical 5% commission):
- Fixed fee: $0.30
- Commission fee: $1500 x 0.05 = $75.00
- Total fees: $0.30 + $75.00 = $75.30
- Amount the store owner receives: $1500 - $75.30 = $1424.70
So, just to be clear. The retailer loses over $75 of his sale because the buyer doesn't have the amount of funds to make the purchase in full today.
Doesn't seem fair does it?
Customer walks out with his goods after only having paid 25% for them. The retailer essentially gave him a $75 discount on the $1500 purchase.
Key things to remember:
The store owner gets the full amount upfront, not the installment payments from the customer.
Afterpay charges fees to the business, not the customer, who pays Afterpay in installments.
Merchants may choose to build these fees into their pricing to offset the cost.
How does Afterpay work for retailers?
As a retailer, the Afterpay sign-up process is quick and relatively simple. When you fill out the enquiry form, an Afterpay customer service representative will contact you in order to discuss your needs. Afterpay works both online and in-store, so you can choose how it suits you best.
If a customer buys something online using Afterpay, they simply select Afterpay at the checkout, and once the customer has received their item, Afterpay will settle with you and assume any credit or fraud risk. The instalments that the customer pays go to Afterpay instead of you since Afterpay will have already paid you for the merchandise.
How does Afterpay integrate with my point of sale?
Afterpay integrates with a variety of point-of-sale platforms as well as ecommerce platforms. Some platforms that Afterpay instantly integrates with include the following:
- Commerce Vision
- Futura
- Infinity
- Pacific Island
- Neto
- Shopify
- Magento
Afterpay may also be able to assist you outside these platforms. Afterpay offers comprehensive technical support for the initial integration and ongoing maintenance if something should go wrong.
What benefits does Afterpay offer my business?
Some of the Afterpay features that can benefit your business include the following:
- Set instalments for customers. Afterpay informs potential customers about the instalment amounts and the frequency of payments to make it easier for them to decide if they want an item.
- New customers. Afterpay gives you the opportunity to benefit from more sales and the possibility of an increased customer base.
- Rise in repeat purchases. The likelihood of repeat customers to purchase from your business increases plus they will be more inclined to spend more per transaction.
- Payment upfront. As soon as the customer receives their item, Afterpay settles with the merchant quickly and automatically. There are no complicated processes or lengthy wait times associated with payment.
- Name recognition. Afterpay is currently used by over 1,400 retailers across the country. You can benefit from this name recognition if you incorporate Afterpay into your business.
- Zero fraud or credit risk. Although it might seem like Afterpay could be a high risk, Afterpay assumes all end-customer non-payment risk for every transaction. This takes you and your business off the hook and you no longer have to chase up defaulting customers.
How much will Afterpay cost my business?
The fees that you can be charged depend on your business's agreement with Afterpay. However, the fees below are a general guide as to what businesses can expect with an Afterpay agreement.
- A $0.30 fee per transaction.
- A commission rate fee per transaction. This can range from 4-6% based on your agreement.
Although $0.30 per transaction doesn’t seem like a lot when you’re selling your products for much more than that, it’s important to factor in the commission rate fee as well.
What interest-free plans does Afterpay offer shoppers?
Afterpay offers a credit line to your customers. They use it to buy items from your store (online or in a physical shop) and pay the money back later.
Customers make 4 payments over 6 weeks, with the first payment taken at the initial purchase of the item. If they do not adhere to the payment schedule, they are charged late fees until they have paid off their instalment.
The 6 weeks are interest-free, so the customer owes the instalments that are reflected on the website.
Pros and cons of Afterpay for retailers
So, are the high fees worth it? There are certainly advantages to consider. The major benefit of Afterpay for retailers is its ability to generate more sales. According to Afterpay’s own studies, it attracts new customers while increasing the average order value by up to 18%. Afterpay customers are enticed to spend more per transaction and are more likely to return for additional purchases. As with other (Buy Now Pay Later) BNPL services, Afterpay provides additional benefits including:
Easy payment plans with pre-agreed installments make it easier for customers to afford a purchase.
Flexible payment plans help you attract new customers, who are more likely to make a purchase.
Afterpay is a trusted name both in Australia and worldwide, facilitating international transactions.
Businesses receive upfront payment for purchases.
Afterpay assumes all risk of non-payment, so you don’t have to chase up on late payments.
The major downside to Afterpay are its fees.
Taking 4% out of your sales can add up to a significant amount over time. Another factor to consider is the approval process for customers. The service’s automated system sets spending limits for new customers, to help encourage responsible spending. This can keep them from making larger purchases without access to credit.
The bottom line: Is Afterpay good for business?
If you’re looking for a way to boost sales and attract new customers, adding Afterpay to your checkout page could be beneficial. It’s always a good idea to cater to as many customer payment preferences as possible to prevent abandoned shopping carts.
With high commission fees, however, it can become problematic if a high percentage of your customers use Afterpay to make all purchases.
It's a far cry from the days of layby
Layby is a purchasing option not really used anymore where a customer pays for an item in installments over an agreed period, and the retailer holds the item until the full price is paid.
This allows customers to spread the cost without using credit, while the store keeps the product aside so it won't be sold to anyone else.
If the cost of the goods is $1500 the retailer receives $1500.
The customer doesn't get the goods until payment has been made in full.
Seems fair to me.
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