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Comment by geekpowa | Hacker News Reader

Afterpay's business model relies on high merchant fees which merchants, under their merchant agreement, are not allowed to pass onto their customers. So from customers point of view, afterpay often appears to be cheaper than other payment channels such as credit card / paypal.

Afterpay roll into a new merchant, cannibalise existing payment systems and at leat for the low margin merchants I work with, who are not savvy enough to look at their own sales data, their business becomes less profitable.

Their whole business model is deeply unethical IMO, harms merchants and harms customers who do not use Afterpay as merchants have to amortize cost of business across all their customers. The Australian regulator dropper the ball last year when considering legislation to align Afterpay with credit card instruments on this issue. Eventually regulators will realise this is harmful behaviour and align things correctly.

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Afterpay has been a godsend for my girlfriend's (brick-and-mortar) business, which is in niche luxury items (keeping it vague).

Customers love using Afterpay, they search on Afterpay for products they want, and are redirected to her store. Online sales went from being essentially no part of her business to being 75% of her sales, and are probably the only reason her business survived the pandemic.

She has no problem with the fact that she needs to pay commission fees to Afterpay - it's a tiny fraction of the (unprofitable) amount that she would have to spend on advertising to achieve the same amount of sales.

Actually the fee is not far higher than Amex. Depends on the business, it can be a blessing or a curse.

Pitching in from Switzerland - Amex is the one card issuer that is constantly going through the cycle of (being delisted from stores because they're fees are too high) => (Customers stop using Amex) => (Amex dropping their fees a tiny bit) => (Stores relist Amex) => (Amex raise their fees).

So "fees not far higher than Amex" sound really quite terrible.

I definitely see the overspending argument, but BNPL is actually way better than the alternatives in the current market. Credit card companies make an overwhelming majority of their revenue (up to 90%) from consumer penalties, while Afterpay makes the majority from merchants. It's a fundamentally different business model and lines up the incentives with consumers, where as CC companies want actively look to abuse people with poor credit.

IMO we all have engrained in our brains the horror of the credit card death spiral and it's warping our perception of any innovation in the space of consumer credit. I think we will see a bnpl takeover of traditional credit and generally healthier consumer finances.

I worked on some of Spotlight's rollout of Zip. I can see why they would prefer that. Spotlight go to a lot of effort to make sure every expense is accounted for. Also given their enthusiasm for it they definitely negotiated a good deal for it. (interest rates on Zip can get higher than most CC's, its only worth it if you pay off in the interest free period).

I would also presume they're harvesting data on how you spend your money, so it can later be sold or used for other targeting. I haven't looked into this in any depth, but IIRC credit cards are not allowed to do this, but other services aren't held to the same standards.

> which merchants, under their merchant agreement, are not allowed to pass onto their customers.

Is this audited by Afterpay perhaps? A company might just increase prices due to quarterly losses and not specifically because of this fee, even if it does contribute to a large amount of margin loss.

Merchants are not allowed to add a surcharge line item for using Afterpay. Instead they have to increase base pricing across the board to cover their increased costs. Afterpay are quite happy for merchants to do this, what they don't like, and what they actively police, is merchants adding a line item passing Afterpay costs onto the consumer.

The macroeconomic impact is potentially enormous. Your mission is to capture an entire generation of consumers (millennials) to use your payment mechanism, and embedded in that is a hidden cost which is comparable to consumer VAT (called GST in Australia) that the sovereign nation also levies. Eventually regulators will take notice of this massive some of money.

A comment I once read of HN as while back resonates deeply with me, that is how broken and unsolved the problem of paying for things electronically remains, in terms of costs, reliability, security and ease of access. Inspite of all the incredible transformation that has occurred over the past 30 years. You think about all the money that moves around for electronic payments, in an ideal world, the net levy should be a fraction of a %, not the 1.5%-3.0% that is charged by credit cards or the 6-8% that BNPL charge.

BNPL is a seemingly a separate situation since it requires the company to front money to merchants with the risk of the person not making a payment and defaulting on the loan, but the merchant fee is indeed where it seems deceptive, even if it might mean more sales due to said customer deception of "0% APR".

What if you do something like a “cash discount?”

It means that can't price discriminate specifically against Afterpay as a payment form. The merchant is free to set prices to whatever they want (as OP notes: the cost of the expensive Afterpay service will be borne by all customers), but Afterpay can't cost the customer more.

Jack is banking on the low-wages and IQ of the majority of CashApp users

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