Last week, Square decided to acquire Afterpay for $29 billion. Afterpay began operations in Australia in October 2014 and got listed in May 2016 at a valuation of $125 million. It is one of the pioneers in the “Buy Now Pay Later” or BNPL space. As the name suggests, BNPL enables paying later for a purchase. At the time of checkout itself, customers get to know whether a BNPL provider can enable them to pay in instalments. While there is no upfront fee for the customer, a fee is levied for delays. BNPL providers charge retailers a fee for every transaction, which forms the majority of providers’ revenues. Hence, unlike credit card customers, BNPL customers don’t cross-subsidise one another; instead, the merchant bears the cost for everyone. This proposition has resonated particularly well with the millennials.
The emerging internet economy is fundamentally changing the way consumers and businesses interact with each other. The implications of this megatrend are enormous. It is disrupting traditional businesses in more ways than one. A new crop of digital-native, mobile-first companies is emerging and scaling up at warp speed, enabled by a world-class, frictionless payments ecosystem. In general, there can be large value creation opportunities in disruptive, technology-enabled, emerging business models, and these will become a larger part of the market over the next 5-10 years. Given the heterogeneous nature of business models, there will be large winners and losers.