Woman relaxing on a couch while holding a tablet with Afterpay's website page on the screen.
As Afterpay grows, the company is investing in its function as a marketplace where customers can browse and shop directly via product categories and subcategories. — Afterpay

Why it matters:

  • U.S. consumer spending via buy now, pay later platforms, essentially layaway for the bricks-and-clicks shopping era, has surged 230% since the start of 2020.
  • These platforms gained steam amid the pandemic, appealing to credit-averse shoppers who were also spending more at small, local stores.
  • Against that backdrop, BNPL leader Afterpay is expanding its platform to reach more small businesses.

As buy now, pay later (BNPL) services grow in popularity among consumers seeking to split their payments into installments, Afterpay is looking to expand its adoption among small businesses.

The Australia-based fintech firm has already established itself as the dominant player in the emerging space, with 24% of retailers accepting the platform, according to Forrester. It was acquired by Square for $29 billion in 2021, fueling further expansion.

For Zahir Khoja, general manager for Afterpay North America, small- and medium-sized businesses (SMBs) are key to this expansion because he believes that is where today’s consumer wants to shop. “We want to make sure that we allow consumers to engage there, and we want to make sure that we keep [the platform] simple and easy to use, and that we make it rewarding for the small business,” Khoja told CO— in an interview.

There's a strong sense of giving back to the community, as well, amongst the Gen Z and millennial cohort. I think they want to shop local; they want to be able to support businesses in their communities.

Zahir Khoja, general manager, Afterpay North America

Winning over the wallets of Gen Z and millennial consumers

For small businesses, investing in payment technology both online and in stores has become a critical strategy for keeping up with the on-demand pandemic economy. U.S. consumer spending via BNPL has surged 230% since the start of 2020, a study by Afterpay and Accenture found.

It is also key to winning over the wallets of young shoppers. Afterpay is a preferred payment method among younger consumers in particular; according to eMarketer, almost 75% of BNPL users are Gen Z and millennials.

In turn, SMBs to mega merchants like Macy’s and Sephora are adding the pay-in-installment option via platforms like Afterpay, and competitors Klarna and Affirm, to woo cautious spenders who came of age during the Great Recession.

Now Afterpay’s move to sign on more small businesses leans into younger shoppers’ inclinations to support their neighborhood stores, too. “There's a strong sense of giving back to the community, as well, amongst the Gen Z and millennial cohort,” Khoja said. “I think they want to shop local; they want to be able to support businesses in their communities.”

For entrepreneurs like Sherri McMullen, who operates contemporary fashion boutique McMullen in Oakland, California, accepting Afterpay supports her business’s commitment to inclusivity and accessibility. With installment payments, more online shoppers are able to patronize its assortment that highlights designers of color, she said.

“We’ve definitely seen an increase in a younger demographic,” McMullen said in a testimonial. “We’re able to see that we can reach more consumers by allowing more flexibility with payments.”

[Read more: Fintech Startups Update the Layaway Concept With Buy-Now-Pay-Later Payment Options]

 Headshot of Zahir Khoja, general manager for Afterpay North America
Zahir Khoja, general manager for Afterpay North America. — Afterpay

Driving bigger baskets and sales gains via BNPL

For small- and medium-sized merchants, Afterpay is helpful not just for attracting new customers, but for increasing basket size and average order value, Khoja said. “This year, Afterpay will help small- to medium-sized businesses generate $2.3 billion or more in new sales,” he predicts. Due to greater customer exposure and larger basket size purchases, Afterpay estimates that SMBs on the site are generating 50% of new revenue from the platform.

BNPL tools like Afterpay give customers the ability to patronize small businesses on more flexible terms —even if that means investing in products that cost more than they might at the mass-market level.

Parker Clay, an independent brand that offers luxury leather goods handmade by local artisans in Ethiopia, found that accepting Afterpay has been a major growth engine for the business as it scales. “We joined early on when they were one of the first to market,” co-founder Brittany Bentley said, adding that the brand has experienced a 14% increase in average order value through Afterpay.

[Read more: Brands Leverage Diversity-Driven Marketing and Authentic Engagement to Court Gen Z]

Offering small businesses cost-effective marketing and consumer data insights for smarter decision making

As Afterpay grows, the company is investing in its function as a marketplace, not just a

payment service. On the Afterpay site and in its mobile app, customers can browse and shop directly via product categories as well as by rotating subcategories including Black Owned Businesses, Deals & Offers, and a Holiday Gift Guide.

“Our shop directory refers over a million customers a day to our merchant partners,” said Khoja. The site highlights small businesses for customers looking to support local or independent retailers, while serving as an affordable marketing channel for these businesses, he said. “Another value that Afterpay brings to them is that we can cost-effectively drive customers cost to their stores, whether it be [their physical] store or online.”

A new insight platform, Afterpay iQ, puts consumer data in the hands of merchants in order to deliver actionable insights to shape future business decisions. This data can help to drive future growth and help ensure SMBs are investing in the products, channels and marketing campaigns that resonate most with their audience. The self-service platform is built into the Afterpay offering for merchants of all sizes. “Years ago, [large enterprises] would have spent a lot of money on building up these types of data dashboards,” Khoja said. “As a small business, having this at your fingertips is extremely beneficial.”

All told, the idea, Khoja said, is to provide its merchant partners with access to tech solutions that may have previously been prohibitively expensive for a small business, but have become critical to meet omnichannel consumer expectations.

They’re also an important selling point for merchants deciding which fintech service to join, he said. “I think that's a huge cost-saver for SMBs, and a differentiator for Afterpay amongst all of the others,” he said.

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Published November 10, 2021