SYDNEY, Australia – In Australia, Nick Molnar, the US CEO and Co-Founder of Afterpay, speaks about the firm going for its initial public offering (IPO) nearly nine months following its first-ever capital raise.
Often, especially in the US, large and popular technology firms usually take their time when it comes to dipping their foot towards their IPOs. For example, Square, and equally popular financial service and mobile payment company, took about six years before they decided to get to their IPO. Facebook also waited around eight years before its IPO, while Uber has been around for a decade before its IPO.
And while it is not the case for every firm out there, but a lot of companies take as many years of project funding and scaling their business before they consider their chances for a favorable entrance into the public market.
But that wasn’t the case for Afterpay, a digital service and payment scheme that has taken Australian shoppers by storm. Only after nine months since its first-ever venture funding, the firm went for its IPO.
Afterpay is an Australian fintech company operating in the country as well as in the United States, New Zealand, and the United Kingdom. The “buy now pay later” company previously pushed the potential regulation of its payments against the Reserve Bank of Australia. According to Afterpay, they shouldn’t be categorized as a payment system because they have a smaller scale compared to large tech companies like Facebook and Google.
The market capitalization of Afterpay is at $10 billion. Most of its profits are from its merchant fees, which is around 3% to 6% of its transactions.
According to Molnar, during a podcast interview, their decision to get ahead ongoing public was not because they have a strong desire to get started with the IPO. Instead, according to him, they went public early primarily because of the 100 retailers and 30,000 customers signed on the move.
Molnar also stated that they understand that going public as early as they did is a high-risk move for them. However, he said that they saw an incredible way to gain a sufficient amount of liquidity that will help them keep up in the ever-growing industry and continue to grow.
Molnar said during the interview that his background in the retail industry has greatly helped, especially that he didn’t know a lot about the process of going public. Although, he added that his co-founder at Afterpay, Anthony Eisen knows the IPO process.
He further stated that his somewhat naivete about it has helped him get through the entire process without being too focused on worries. But Molnar also noted that the process was still incredibly stressful, especially as the payment concept that Afterpay offers is very new in the market. The millennial demographic that the company is anticipating boosting them forward hasn’t gotten into their peak spending years yet as well.
Molnar added that for Afterpay, they are always trying to be clear about where they are at the moment and being honest about where they want to work towards.
Among the big questions from a lot of potential investors of Afterpay was about comparing the payment option they offer to the masses against the traditional credit cards, which is something that most people use if they want to buy now and pay later. Molnar answered this, citing that Afterpay is not a credit card, and it doesn’t aim to be one. Because according to him, the millennial consumers they are focused on doesn’t wish to be subjected to the revolving debt that comes with using credit cards.
According to Molnar, the first challenge for Afterpay is explaining why they believed that millennials changed their behavior that isn’t quite noticeable at the moment but would be obvious in the coming years.
Part of their solution in that issue was comparing Afterpay to a particular product that is more alike to a credit card account, what the Australians called as laybuy or layaway. Molnar said that there is a reason that when they were working with investors and retailers early on, they called Afterpay as layaway 2.0. Calling their product as such has given them a more understandable concept that is quite familiar with everyone, he said.
After they were able to articulate their offer, Molnar said that the next big questions they faced were mostly about growth. Investors and retailers asked them if they can work ongoing global, which is something that Afterpay achieve around 18 months ago. The first launched in the US in 2018 and UK in 2019. More countries are on their agenda for Afterpay’s expansion in 2020 as well.
But when asked they were able to persuade their early IPO investors about the possibility of their global growth, Molnar said that it became possible with the help of their friends.
Molnar said that they were able to manage something quite early than is usually deemed difficult to generate, especially for a smaller and up-and-coming payment platform like them.
When it comes to their consumers, he said that their millennial consumers have helped with actively promoting their product to other retailers and their baby boomer parents. Afterpay’s flexibility in payment methods plus their incentives boosted their customer base to take-off faster than they ever thought was possible.
Molnar explained that retailers seek and try a lot of products to help their business grow, and while many of those products don’t work, he said that retailers are open to sharing with others what they have found effective, which is what happened with Afterpay.
Meanwhile, their investors gained a better understanding of the fact that their consumers respond to Afterpay as an easy way for them to pay in installments without the possibility of mounting interest charges like in credit cards, especially with the previous 25% of sales of the firm from its retail partners. That profit rate has already gone up to 35% and 40% in some of Afterpay’s partners.
All those factors helped Afterpay to stick to its IPO landing, even with the relatively early move of the firm to the public markets, said Molnar. He added that after that, the entire team celebrated by eating lunch together but went back to work right after because, according to him, the work isn’t done even with the IPO over.