Last Monday, I broke bread with a bloke who’d just made $54 million … before lunch.
His name is Anthony Eisen and he’s one of the founders of Afterpay.
And he’s very, very rich.
Yet a few years ago he was like any other dad living in the burbs. As he’d turn out the lights at night, he’d notice there was always one light glowing across the street. It came from the room of Nick Molnar, a kid in his final year of uni who lived with his parents.
“Probably studying for his exams”, thought Eisen.
One day Eisen got talking to Nick, who explained he stayed up all night working on his eBay jewellery store. Yet the real jewel that caught young Nick’s eye was a groundbreaking payment system for his store:
“You buy something, and then you make a series of payments … but there’s no interest”, Nick told his neighbour.
“Ummm, that’s actually been around for years. It’s called lay-by”, said Eisen.
That conversation happened about four years ago in a sleepy suburban street in Melbourne.
Today, the Afterpay Touch Group is one of Australia’s fastest growing companies, worth over $4 billion.
So, how did they do it?
Well, the genius of Afterpay is that it looked at credit from the customer’s point of view.
The traditional credit model involves screwing the customer: think credit cards, personal loans, and so-called ‘interest free’ deals. Millennials have worked this out, and shun credit as a result.
Afterpay screws the retailer instead.
It charges the shop a 4% commission on goods that are Afterpaid (it’s a verb, apparently). The customer then pays off the purchase in four fortnightly instalments. And if they pay on time, there are no fees, and no interest. Think of it as a modern-day version of lay-by with a millenial twist ‒ you get the goods immediately.
Clearly it’s a better option than a credit card, or a personal loan, or anything old Gerry Harvey has come up with.
So here I was meeting up the man who started it all … and I found out that, like me, he’s on a mission to help young people with their money.
“We’re here to help people, it’s in our DNA!” Eisen told me, sounding positively Zuckerberg-ian.
“Steady up, cobber”, I replied.
Here was another fabulously rich white tech dude who was saving the world … one short-term loan at a time.
It’s my job to needle these visionaries on their ‘new new’ money thing.
Look, there’s no denying that Afterpay has transformed the way millenials shop.
However, I’ve learned that with these ‘new new’ things, it takes a while for the ‘bad bad’ to show up. (Case in point: Mark Zuckerberg started out with the simple, wholesome aim of ‘making the world more connected’ ‒ and look where that got him.)
Specifically, what happens when you train a generation to spend money they don’t have?
Because, make no mistake, that’s where we’re headed:
The majority of Afterpay’s 2.6 million customers are millennials.
Eisen told me that the average outstanding balance for a customer is just $208.
Yet many are on a merry-go-round ‒ 90% of Afterpay’s transactions are from repeat customers.
Late last year ASIC found that one in six of millenials who use ‘buy now, pay later’ services like Afterpay are in financial strife … getting overdrawn, delaying bills, or borrowing more.
And that’s why I call Afterpay the ‘marijuana of credit’ ‒ my point is that, once you get hooked on spending someone else’s money, there’s every chance you’ll graduate onto harder stuff.
Still, I seem to be in the minority. That very morning that I met Eisen, the Senate inquiry into the ‘buy now pay later’ industry had left Afterpay off the hook from tougher regulation, which predictably caused the share price to rocket. In turn, Eisen, already one of the wealthiest men in Australia, was $54 million richer that day, at least on paper.
At the end of our lunch the waitress came over with the bill.
“I’ll pay”, said Eisen.
“No, I’ll pay … with cash!”
Tread Your Own Path!
P.S. Afterpay is a hot button for plenty of people ‒ I’ve been inundated with emails. So this week I’m devoting my questions to it. And to kick it off, someone who is clearly a fan …