They are in a regulatory blackhole, in Australia merchant fees are tightly regulated, cannot be more than actual processing cost. Many companies here charge more to pay bills by credit card or shops have minimum amount before credit cads are accepted. Moreover since Afterpay technically doesn't give consumer credit they are not bound by national credit rules as well. They don't and can't do credit checks

Presumably this extends beyond Australia though, right? As Square paying $1,000 per Australian would be a bit high.

Just to expand upon what the parent said, their fee is significantly higher than the companies that just process credit cards (around 6% compared to the industry standard rate of 2.9%).

I believe they eat the loss when the customer defaults, though.

Oh boy...so this 6% fee is then indirectly passed onto consumers.

To play devil’s advocate though, if a 6% payment fee allows a merchant to make a sale they wouldn’t have otherwise made, then that might be a net win from their perspective. I.E. eating some decrease in profit is better than making nothing at all.

It’s basically the app version of offering interest free payments on a purchase.

Totally agree - I was just poiting out that just like 2.9% credit card fees that get ammortized over the total sales by the means of higher prices (meaning even if you use cash, you don't get a discount[1]), the 6% has to come from somewhere.

[1] Some gas stations have a different cash rate to pass the savings on to the customer

Yep. To be fair, so are the (lower, but non-zero) fees from Visa/MasterCard/Amex/PayPal.

It's a textbook example of an externality.

The fee is paid by the customer. It isn't an externality. An externality is when the cost is paid by someone who isn't party to the transaction.

>The fee is paid by the customer.

No it isn't. It's literally against their TOS for merchants to add on a surcharge for using Afterpay.

And yet, magically and by the power of the market, the fee will still be paid for by customers. It isn't like the merchant has a non-customer source of income. The money has to be coming from them.

If you don't want to pay the surcharge, shop somewhere that doesn't offer Afterpay. Or somewhere that doesn't honour the TOS, I once got an extra egg in my soup for paying cash.

>And yet, magically and by the power of the market, the fee will still be paid for by customers.

Yes, by all the customers, including those that don't use Afterpay.

Which doesn't make it an externality, because they are still choosing to use the vendor. My favourite take-out place for a solid 2 years was the cheapest on the street and probably because they didn't support Afterpay or credit cards. The customer has all the power to avoid the cost if they want to.

They pay the Afterpay surcharge because they want a standard shopping experience that supports lots of different ways of paying. If they want to shop on price Afterpay will vanish from their view.

thanks!