For Kiwi consumers, Afterpay has become a popular choice for Buy Now, Pay Later (BNPL) services, making it easier for customers to spread out the cost of their purchases. For small businesses, it’s been a bit of a double-edged sword. While Afterpay can help them attract more customers and increase sales, it also comes with challenges that could impact their long-term success.
One big draw of Afterpay is that it helps small businesses compete with larger retailers. By offering a payment option that splits the cost into smaller instalments, businesses can encourage customers to make purchases they might otherwise hold off on. As of 2024, around 5,000 New Zealand merchants had added Afterpay to their checkout options. It’s been shown to improve conversion rates by up to 20% and increase the average amount customers spend by 30%. For a small business, that’s a significant boost.
Another advantage is cash flow. When customers use Afterpay, businesses get paid upfront in full, while Afterpay handles the repayments. This can be a lifesaver for small businesses trying to manage expenses like inventory and wages. They don’t have to worry about customers defaulting because that’s Afterpay’s responsibility.
Growth Opportunity or Financial Strain?
But all of this comes at a price. Afterpay charges businesses a fee of 4% to 6% on each transaction. Compared to traditional credit card fees, which are usually 1% to 3%, that’s a big chunk of profit. For small businesses with tight margins, these fees can eat into the extra sales they’re getting.
There’s also the risk of becoming too dependent on Afterpay. If a business focuses too much on promoting BNPL options, they might attract customers who are stretched financially. While this can drive sales in the short term, it might not be sustainable if those customers cut back on spending later or struggle to pay off their debts.
Another concern is the potential for bad PR. BNPL services like Afterpay have been criticised for encouraging people to spend beyond their means. In 2023, a study found that over 10% of New Zealand consumers had missed a BNPL payment. If a business relies heavily on Afterpay, it could be seen as contributing to this problem, which might hurt its reputation.
Competition is another challenge. Afterpay is one of the biggest BNPL providers, but it’s not the only one. Other companies like Zip or Klarna offer similar services, and some have lower fees or different features. For small businesses, choosing the right platform—or juggling multiple ones—can be tricky and time-consuming.
Even with these downsides, many small businesses see Afterpay as a valuable tool. It’s especially effective for reaching younger customers who prefer digital payment options and don’t use credit cards as much. Plus, Afterpay provides data on customer spending habits, which businesses can use to improve their marketing and better understand their audience.
Afterpay is a mixed bag for small businesses. It can help boost sales and cash flow, but the fees and risks mean it’s not a magic solution. To make the most of it, businesses need to be smart about how they use Afterpay, balancing its benefits with other strategies and payment options. By doing so, they can take advantage of what Afterpay offers without letting it become a liability.
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