Afterpay

It turns out paying off online orders in little bits is a big idea — one that’s changed the conversion conversation in Australia and has now come to America.

Melbourne-based Afterpay is just three years old, but processes 25 percent of all e-commerce orders in the beauty and fashion market Down Under (fashion by itself is a $3 billion business). Cofounder Nick Molnar is looking to do the same in the $60 billion online fashion market in the U.S., linking with Urban Outfitters Inc. and others and setting up a base in San Francisco.

Afterpay has a simple proposition: Users sign up with their name, address, e-mail, date of birth and payment card info. When they’re shopping on a participating e-commerce site, they choose the Afterpay option checking out. The service takes one-quarter of the price of the item from the card immediately and automatically deducts the rest in three other payments over six weeks.

Users don’t have to enter into a traditional loan and Afterpay assumes all nonpayment risk.

The service is paid by the merchants and consumers who fall behind on their payments lose access to Afterpay until they’re caught up. There is also no fee for using Afterpay for consumers as long as their purchases are paid off on time.

“We’re a retail-led business, we’re not a financial-led business and for us, that’s everything,” Molnar said.

Molnar said Millennial consumers in Australia and America have a strong preference for spending their own money.

“The biggest data point for me is the Millennial preference for debit cards over credit cards in the U.S. market,” he said. “Two out of every three Millennials under the age of 30 don’t own a credit card.”

Since Afterpay cuts off shoppers who fall behind, it has a different profile than a credit card where users can roll over balances, paying interest along the way.

But by providing a six-week installment plan, Afterpay spurs more full-price sales for retailers, boosting conversion rates and incremental sales by 20 to 30 percent, Molnar said. Consumers also tend to have a higher average basket size and buy more frequently when using the service.

Molnar said the average Afterpay user makes eight purchases a year.

The company, which went public in 2016, has more than 1.8 million Australian customers and works with more than 14,000 retailers in the country, including Sephora, the Estée Lauder Cos. Inc. and Lululemon Athletica Inc.

Now the challenge is to build similar scale in the U.S. Afterpay has a good start, bringing on not just Urban Outfitters Inc., but also Morphe Cosmetics, Quay Australia, Loeffler Randall and Lorna Jane.

David Hayne, chief digital officer at Urban Outfitters, said the company would launch Afterpay in the U.S. with its namesake chain this week.

“Preliminary tests in the U.S. have shown promise, and based on the success Afterpay has seen in Australia, we have reason to believe our U.S. customers will embrace this innovative new payment solution,” he said.

And Scott De’Cent, chief financial officer at active brand Lorna Jane, which uses the service in Australia and is bringing it to the U.S., said: “From the moment we integrated Afterpay online, we experienced a positive impact on sales conversion and average order value. The short settlement time and reduction in payment risk is advantageous to us.”

To help build the U.S. business, Afterpay has made a series of hires, including:

• Xin Ge, who takes on the role of global chief risk and analytics officer after heading up risk management at Uber.

• Melissa Davis, as U.S. chief revenue officer after serving as executive vice president and general manager at ShopStyle.

• Akash Garg, as U.S. chief technology officer and vice president of product after serving as director of engineering at Uber.

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