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  • Nick Molnar is something of an Australian icon.

  • You can't really digest what's happening because a lot has happened very fast.

  • The 30-year-old is credited with reinventing the spending habits of millions of millennials,

  • earning a spot on his country's young rich list in the process.

  • My co-founder and I made a rule very early on that we wouldn't watch the share price.

  • And now, as the pandemic supercharges his payments business,

  • its soaring stock price has shot him to billionaire status.

  • My wife always says just don't look down.

  • Nick is the co-founder and co-CEO of Afterpay, a “buy now, pay laterplatform that allows

  • users to stagger the cost of their purchases over regular, interest-free installments.

  • Here's how it works: Say I want to buy these $200 trainers,

  • but don't want to part with all the cash upfront.

  • I can make an initial payment of $50, followed by $50 every two weeks

  • until the full cost is paid off.

  • If I miss a repayment, I'll be charged a late fee and blocked from the platform until

  • my payments are up to date.

  • We pay the retailer the next day and then we assume all the risk, so it's our responsibility

  • to recover the funds from the customer on the due date.

  • The business was born here in Australia back in 2014 and in just six years has turned into

  • a multibillion-dollar public company.

  • It now has more than 11 million active users and almost 64,000 merchants.

  • From a little idea ... it's been amazing to see it really catch on.

  • Nick, a commerce graduate from the University of Sydney,

  • noticed that young people's spending habits were changing.

  • His theory?

  • That young people are growing skeptical of traditional financial products,

  • like credit cards, which can lead to spiraling debts.

  • So Nick teamed up with co-founder Anthony Eisen, an investment officer, 18 years his senior,

  • to create a millennial-friendly alternative for deferred payments.

  • I actually started Afterpay with my neighbor.

  • Anthony and I got to know each other and we started speaking about this trend

  • that I'd seen growing up in the 2008 Financial Crisis.

  • So, becoming an adult during that period of time was pretty telling when 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.

  • According to a survey, just one in three adults aged 18 to 29 owned a credit card.

  • That compares to more than half of 30 to 49-year-olds

  • and around two-thirds of those aged 50 and above.

  • After launching in late 2014, the business saw quick growth.

  • Cash-tight consumers liked the four equal installments model, while retailers,

  • keen to boost sales, were happy to pay a small commission to get on the platform.

  • Our thought process was, how do you turn this completely on its head.

  • Where, rather than charging the consumer, you charge the retailer a small fee.

  • Within two years, Afterpay managed to raise $18 million on the Australian Securities Exchange

  • in a heavily oversubscribed initial public offering.

  • Even the Kardashian sisters are fans.

  • An endorsement from Kim Kardashian on her social media accounts in 2018 to her millions of followers,

  • boosted the company's international profile among millennials and Gen Z.

  • Her sister's cosmetic brand, Kylie Skin, is now one of thousands of major retailers,

  • including Lululemon and Adidas, that have piled onto the platform as consumer habits evolve.

  • During the spring lockdowns, Visa credit card transactions in the U.S.

  • 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 piled 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 cards.

  • That has also supercharged Afterpay's growth.

  • After dropping to A$8 in March 2020, the share price was up 1,300%

  • to hit a high of A$105 in November.

  • Meanwhile in May, Chinese tech giant Tencent paid more than $200 million

  • for a 5% stake in the company.

  • That has made Afterpay one of the hottest stocks in Australia and catapulted

  • both Nick and Anthonywho each own 7% stakesto billionaire status.

  • Sometimes the share price goes up or goes down.

  • I don't think it means we're any better or worse business over those periods of time.

  • Morgan Stanley is now predicting the stock could hit A$120 by the end of 2020.

  • Afterpay's rapid growth hasn't been entirely well-received, though.

  • Critics have argued that the platform encourages excessive and unsustainable consumer spending.

  • Currently, buy now, pay later platforms such as Afterpay, Affirm and Klarna

  • fall outside of consumer credit laws in most countries.

  • Hianyang Chan, a Sydney-based senior consultant at market research firm Euromonitor, told me more.

  • 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 at the same time, it can also be seen in another manner where, because of the lack

  • of regulations, it might also put vulnerable people in a position where they might be spending

  • more than what they actually have.

  • Afterpay reports that 90% of its transactions are paid on time.

  • Overall, late fees accounted for less than 14% of the company's total income in 2020,

  • with the remainder coming from merchant feesthe 4 to 6% commission it charges retailers.

  • The most important point about our business that many aren't too familiar with is that,

  • the moment someone goes late on one installment payment,

  • they can't keep shopping until they pay that late payment back.

  • Regulators are also concerned that small businesses are unable to absorb the merchant fees

  • as easily as larger businesses, hurting competition.

  • I think the regulatory bodies are seeing not only how can we protect the consumers,

  • but also how can we protect the merchants as well.

  • I think this is something that is going to be an ongoing conversation for many years to come.

  • Nick said the company is currently in voluntary discussions with regulators about such concerns.

  • Even as the industry continues to grow apace, Afterpay has yet to turn in a profit.

  • In 2020, Afterpay's revenue doubled to $382 million while losses halved to $16.8 million.

  • The business is now focused on driving that growth forward.

  • Key targets for that include the U.S., the U.K. and Europe.

  • To that end, Nick will be based in the States to lead their international expansion,

  • while his co-CEO Anthony will be based in Australia.

  • Different regions are in different phases of growth.

  • In Australia, one in three millennials use 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.

Nick Molnar is something of an Australian icon.

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How the pandemic made this 30-year-old Australia’s youngest self-made billionaire | CNBC Make It

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    Summer posted on 2020/12/08
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