Nick Molnar is something of an Australian icon. The 30-year-old is credited with reinventing the spending habits of millions of millennials, earning him a spot on his country’s young rich list.
And now, as the pandemic supercharges his payments business, its soaring share price has shot him to billionaire status. “You can’t really digest what’s happening because a lot has happened very fast,” Molnar told CNBC Make It.
Inspired by crises
Molnar is the co-founder and co-CEO of Afterpay, a “buy now, pay later” payments platform that lets users spread the cost of their purchases over regular, interest-free payments.
This year, the six-year-old tech start-up became one of Australia’s hottest stocks, surging 1,300% and doubling active users to 11.2 million as the coronavirus pandemic spurred new spending habits.
But when Molnar launched the business six years ago with his neighbor, Anthony Eisen, an investment officer 18 years his senior, it was in response to a different crisis entirely.
“There was this trend that I’d seen growing up in the 2008 financial crisis,” he said.
A millennial payments product
Molnar, then a commerce student at the University of Sydney, noticed that young people’s spending habits were changing. His theory? That young people had grown skeptical of traditional financial products, such as credit cards, which can lead to spiraling debts.
“Becoming an adult during that period of time was pretty telling,” he said. “You saw parents, or friends of parents, lose their jobs, and essentially the millennial cohort as a whole said: ‘I prefer to spend my own money; I’d prefer to spend on a debit card as compared to a credit card.’”
Our thought process was: how do you turn this completely on its head?
So Molnar and Eisen decided to come up with a new, millennial-friendly alternative for deferred payments that would charge retailers for sales rather than charge consumers for repayments.
Under the “buy now, pay later” model, shoppers can spread the cost of a purchase (up to $1,500 Australian dollars, or $1,115) over four equal instalments, while participating retailers pay a small commission — around 4% to 6% — on each sale.
If a user misses a repayment, they are blocked from the service until the full cost of their purchase is paid off. “In what I would call the traditional finance space, the vast majority of income was made from the consumer, not the retailer. And our thought process was: how do you turn this completely on its head?” said Molnar.
winning celebrity backing
After launching in late 2014, the business saw quick growth. Cash-tight consumers liked the equal-instalments model, while retailers, keen to boost sales, were happy to pay a small fee to get on the platform.
In just two years, Afterpay was able to raise almost $18 million (about $25 million Australian dollars) through an initial public offering on the Australian Securities Exchange.But the business only took off internationally after a tweet from reality star Kim Kardashian, following Afterpay’s U.S. launch in 2018.
Her sister’s cosmetics brand, Kylie Skin, is now one of the thousands of retailers, like Lululemon and the German sportswear company Adidas, that use the service. This is because consumer habits are changing.
Propelled by the pandemic: —
The pandemic has only accelerated that trend. During the spring lockdowns, Visa credit card transactions fell by more than 30% year-on-year. While debit card transactions also plunged in the same period, they recovered quickly in May as consumers started spending again on retail and home improvement goods during their stay indoors.
“If you look at what’s transpiring in the current pandemic, similar to what we saw in the 2008 financial crisis, there’s this distinct shift away from credit to debit,” said Molnar.
That has also supercharged Afterpay’s growth.
A soaring stock price
After dropping to $8 Australian dollars per share in March 2020, the stock price was up 1,300% to hit a high of $105 Australian dollars in November.
Chinese tech giant Tencent paid more than $200 million for a 5% stake in the company in May. That has made Afterpay one of the hottest stocks in Australia and catapulted both Nick and Anthony — who each own 7% stakes — to billionaire status.
Anthony, my co-founder, and I made a rule very early on that we wouldn’t watch the share price.
“Anthony, my co-founder, and I made a rule very early on that we wouldn’t watch the share price. Sometimes the share price goes up and down; I don’t think it means we’re any better or worse business over those periods of time,” said Molnar.
Morgan Stanley is now predicting that Afterpay could hit around $88 a share by the end of this year.
Buy now, pay later under watch
Afterpay’s rapid growth hasn’t been entirely well received, though. Critics have argued that the company encourages excessive and unsustainable consumer spending.
“In one angle, we can position it as how ‘buy now, pay later’ platforms allow consumers to be more conscious and cautious about their spending.” But it might also put vulnerable people in a position where they might be spending more than what they actually have,” Hianyang Chan, a Sydney-based senior consultant at market research firm Euromonitor, told CNBC Make It.
At the moment, platforms that let you buy something now and pay for it later, like Afterpay, Affirm, and Klarna, are not covered by consumer credit laws in most countries.At the same time, regulators are worried that smaller stores can’t handle the costs of these services as well as larger ones, which hurts competition.
“Regulatory bodies are seeing now not only how we can protect the consumers but also how we can protect the merchants,” said Chan. “This is something that is going to be an ongoing conversation for many years to come.”
Molnar, for his part, said that such worries are being discussed with regulators right now. In 2020, Afterpay reported that 90% of its transactions were paid on time. Overall, late fees accounted for less than 14% of the company’s total income, with the remainder coming from merchant fees.
Global expansion plans
Even as the industry continues to grow apace, Afterpay has yet to turn a profit. In 2020, the company’s revenue doubled to $382 million and losses almost halved to $16.8 million.
Molnar said he is now focused on driving that growth forward by expanding globally. Key targets for that include the U.S., the U.K., and Europe. In the U.S., we processed over $4 billion of volume in the past 12 months, but it’s our second full year and we’re really just getting started.
To that end, Molnar plans to relocate to the United States to head up Afterpay’s international expansion, while his co-CEO, Eisen, will continue to be based in Australia.
“Different regions are in different phases of growth,” said Molnar. “In Australia, one in three millennials uses our service every month. In the U.S., we processed over $4 billion of volume in the past 12 months, but it’s our second full year, and we’re really just getting started.”