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Afte Investigation BELLA WILLIAMS, 11R2

Table of Contents 1.0 Introduction................................................................................................................................2

2.0 The Business- Afterpay................................................................................................................2 2.1 Business Ideation of Afterpay......................................................................................................2 2.2 Entrepreneurial Characteristics of Nick Molnar..........................................................................2 3.0 Afterpay and Maslow’s Hierarchy................................................................................................3 4.0 Analysing the Business Idea........................................................................................................3 4.1 SWOT Analysis.............................................................................................................................4 4.2 Interpretation of the SWOT analysis............................................................................................5 4.3 PEST analysis...............................................................................................................................5 4.4 Interpretation of the PEST analysis..............................................................................................6 5.0 Viability of the Business Idea.......................................................................................................6 5.1 Evaluation....................................................................................................................................6 5.2 Recommendations for Business..................................................................................................7 6.0 Conclusion...................................................................................................................................8 7.0 Reference List..............................................................................................................................9

1.0 Introduction Within the early stages of a business life cycle, there are many leading factors and contributors that affect the transitioning from seed-stage to the start-up stage of a business. One element that requires insight and consideration within the early stages of the business idea, is the influences and personal needs that business stakeholders such as: entrepreneurs,

employees and consumers hold. Throughout this investigation, an Australian business will be explored – directly focusing on the contributing factors towards the business ideas and the businesses entrepreneur. The viability of the business idea will also be investigated, and recommendations will be provided to ensure future business success. The outlined business to be investigated is an Australian financial technology company called Afterpay Limited.

2.0 The Business- Afterpay Afterpay is an Australian business, co-owned by Nick Molnar. Anthony Einsen’s shared ownership of Afterpay, reveals the business structure - partnership (Financial Review, 2019). The original idea for Afterpay was first established in late 2014 and was quite unique to the marketplace when it was first launched (Willis, 2018).With sufficient research into the industry, Nick Molnar realised there was a gap in the digital payment industry when it came to modern lay-by systems and decided to further refine his idea of Afterpay (Mitchell, 2019). Through targeting young people, Nick had prior knowledge towards the many millennials in debt and decided to provide a way for his customers to achieve a debt free repayment method on goods. Afterpay allows customers to “Pay for purchase over 4 easy instalments, with an interest-free payment schedule” (Afterpay, 2020).

2.1 Business Ideation of Afterpay The initial idea and start-up of the business Afterpay was established through the seed stage. During the seed stage, imperative decisions are made focusing on; research into the industry, testing and feedback from acquaintances towards the overall idea. The idea and strategies are then refined and developed to determine the future viability of the business idea. Additionally, stakeholders such as; suppliers, customers and business owners must be identified and engage within the processes in the seed stage. Research into the industry was conducted by Nick Molnar, ‘During the 2008 global financial crisis millennials preferred to spend their own money, we were picking debit cards over credit cards," he says. "But we still wanted to buy stuff." (Mitchell, 2019). Molnar found a solution to the problem and gap in the market that was lacking- Afterpay. A marketing strategy that was emplaced throughout the seed stage of Afterpay is social media, online presence as well as the incorporation of the mobile application. This form of marketing reaches its target market of millennials as ‘more than nine-in-ten millenials own smartphones and use social media’ (Vogels, 2019).

2.2 Entrepreneurial Characteristics of Nick Molnar In the seed stage of the business idea, Nick Molnar demonstrated many entrepreneurial characteristics that include; strategic thinking, problem solving and innovative thinking. “My business partner Anthony Eisen and I identified this gap in the payments market in Australia” (Mitchell, 2019), states Molnar. Nick Molnar displays problem solving characteristics as he saw a problem and found a way to provide a solution for it - "During the 2008 global financial crisis millennials preferred to spend their own money, we were picking debit cards over credit cards," he says (Mitchell, 2019). Another characteristic displayed by Nick is resilience, he states “Look at failure as a way to learn. Don’t take no for an answer – you have to be relentless, especially as an entrepreneur” (Carlton, 2019). He is resilient and learns from his mistakes which is beneficial towards the business’s progress.

3.0 Afterpay and Maslow’s Hierarchy Maslow’s Hierarchy is the understanding that all humans have basic needs that must be fulfilled. An understanding of the stakeholders needs within the business idea of Afterpay, will establish a clear vision for the future improvements and further ideas towards the improvement and growth of the business. The application of Maslow’s hierarchy of needs is essential within any business and especially Afterpay, impacting; the business’s ideas, marketing strategies, innovation and opportunities for the business to grow. It is essential to allow Afterpay to further develop ideas, services and products to allow for stakeholder satisfaction. Afterpay is available to purchase many products that would be considered as basic needs. Physiological needs include; food, water, clothing and shoes. Food and beverage including; The Brand Outlet, Noode Nutrition, Moss Conscious Wellbeing & Beauty and Think Foody (Afterpay, 2020) are available for purchase and allow for some of the basic needs to be met. The desire for people to have personal relationships and form attachments with others, also becomes fulfilled within the business idea of Afterpay. Social needs are essential and can be demonstrated within this business by; using Afterpay to assist in paying for social interaction and buying gifts for loved ones. Afterpay strives to target different aspects/needs of the business’s target market- young people and millennials. The psychological needs of a person can be described through esteem and the desire to be respected by one’s peers, feelings of status and recognition. When customers purchase luxury products through Afterpay, customers may feel a sense of recognition from their peers and feel importance within the community.

4.0 Analysing the Business Idea Within Afterpay, an analysis of the business idea must be made to evaluate if stakeholder satisfaction is met. To evaluate the strengths, weaknesses, opportunities and threats that Afterpay is challenged with, a SWOT analysis has been constructed. Additionally, the use of PEST analysis provides further insight towards; political, economic, socio-cultural and technological factors that applies to the business idea, within Afterpay. Clear interpretations of SWOT and PEST will be provided to analyse the business ideas appropriately.

4.1 SWOT Analysis A SWOT analysis was constructed to evaluate the strengths, weaknesses, opportunities and threats that Afterpay faces as an operating business. Both Internal and External factors of the business environment are explored. Strengths

Weaknesses

- Customer and stakeholder satisfaction is high, dedicated to improving customer relationships - Well reputable within the relationship with suppliers and customers - Strong relationship with suppliers and other businesses providing use of their service (Afterpay, 2020) - Popular and well-known business within the marketplace, the most popular in Australia in Pay Later category (Built With, 2020) - Consists of a highly skilled workforce and employees, provided through effective training - Well-built distribution network, consistent and reliable distribution that reaches potential businesses to apply Afterpay - The wide collaboration of Afterpay in many businesses can allow to expand its customer base - A strong online presence with its customer base and the wider community (Afterpay, 2020) including; Instagram, Facebook and Twitter. - Easy and reliable use of technology - Has invested huge resources into training employees, resulting in highly skilled employees (Afterpay, 2020)

- Afterpay charges businesses 4-6% of the transaction, which may incline businesses to choose competitors such as ZipPay to avoid any loss of profit - No flexibility within the payment schedule fortnightly payments must be made. - Late fees are more expensive than competitors and customers are more regularly penalised - Fees charged are expensive if the payments aren’t made fortnightly and on time, which can result in being charged extra (Lamont, 2020) - Targeted mostly at younger people, because of the need for use of technology, older aged customers are being neglected - Afterpay has spent more than the industry average on research and development and has still not been able to compete with leading competitors in terms of innovation (FFU, 2020) - Not substantial internal organisation structure - Afterpay is only available in Australia, New Zealand, United States and United Kingdom which limits its marketing and sales to these countries only (Lamont, 2020).

Opportunities - Room to expand the target market and customer base

Threats

to older people, allow for use without technology or provide an easier way to assist the older population with technology (application). - Allow for other ways to access Afterpay, for those without access to mobile devices, innovative ideas - Incorporate Afterpay into more shops and businesses to continue growth and a wider customer base - More flexible repayment scheduled for customers - Update the application as technology is improving and updating - Interact with customer base more, to allow for customer retention - The low inflation rate will provide stability within the market and allow for a cheaper interest rate for Afterpay customers - New and emerging market segments/ niches, provide Aftepay with further opportunity to improve its product/service - Expand Afterpay into foreign markets, allowing for wider customer base and sales made in countries it isn’t yet available in- room for innovation

- Certain trends etc; environmental, economic – may cause negative publicity towards the business if the products do not follow the trends/ what people like - A risk of affecting customers credit rating - Afterpay has no new innovative ideas/products, the products developed are often just brought forth because of competition from other businesses - Threats from other company’s operating in more countries, providing opportunity for more customer base and government regulations “ASIC product intervention” providing threats towards Afterpay (Elmis, 2019) - Numerous companies to compete against such as; Zippay, Laybuy, Splitit, Sezzle and Openpay. (Built With, 2020) - Competitors such as Visa announcing “buy now pay later”. (VISA, 2020) - Competitors being more innovative and taking over the market etc: Visa allowing shoppers to make purchases without having to download an app or get a credit card. (VISA, 2020) - Recent environmental events effecting the economic conditions can influence the customers spending habits, could affect business successfulness.

4.2 Interpretation of the SWOT analysis The completed SWOT analysis can be used to evaluate conclusions towards the future implications of the business idea and the future direction and strategies to improve the overall business success. Strategies and tactics can be recommended within the internal and external features of Afterpay. Afterpay Limited has many strengths that appeal to stakeholder satisfaction. Firstly, the four interest-free instalments appeal to young customers as an alternative to credit cards with high interest rates. "Millennials have a total aversion to credit

cards," because they can lead to compounding debt”. (Forbes, 2018). Its target towards the younger customers who are desiring a better alternative to shopping without falling into debt, provides the perfect solution to the problem for customers. However, the weaknesses within the business idea can have implications towards the future business success and viability. For example; Afterpay does not include any flexibility within the payment schedule, fortnightly payments must be made on time to avoid fees (MOZO, 2020). The lack of flexibility and customer choice may have negative impacts on the future viability of the business. Furthermore, to allow for success in competitiveness with threats from other competitors such as Visa announcing “buy now pay later” (VISA, 2020), Afterpay could incorporate opportunities such as more flexible payments to increase customer bases. The excessive fees could be considered a weakness as people would be less inclined to use Afterpay as the fees ae more expensive, which as a result decreases overall profits and successfulness of the business.

4.3 PEST analysis A PEST analysis will be used to analyse the political, economic, socio-cultural and technological factors throughout the business’s macro environment.

Political Factors - “Afterpay has been the subject of more than 250 complaints to the Australian Financial Complaints Authority due to unauthorised transactions, incorrect fees and negative impacts on credit ratings”. (ABC, 2019) - Despite Afterpay not being regulated as a credit provider (Treasury, 2020), the right to report any negative activity on a customers account (including late payments, missed payments, defaults or chargebacks) to credit reporting agencies is held by Afterpay. (Finder, 2020) - The trend towards deregulation of the financial industry within Afterpay and its competitors could negatively impact customers and their credit ratings / benefit Afterpay and increase profits.

Economic Factors - Recent external factors (COVID19) have contributed to a decline in the economy and wages internationally, affecting customers disposable incomes - The target market of young people have found a decline in disposable income due to loss of jobs - Afterpay has a higher attrition rate and needs to invest more money on recruitment and skill training of its employees, compared to its competitors. - Current interest rates within its operational countries could affect business growth and expenditure - High levels of unemployment, lower wagesmeaning higher profit for the business - Consumers spending the money they get from their low wages (money they don’t have) on Afterpay’s products, leaving customers in debt

Socio-cultural Factors

Technological Factors

- Demographics of the target market, etc; age, gender, race, marital status, income, education, and employment - Skill levels of employees, affecting funds put into training and advancing skills - 2.2 million Australians made transactions with Afterpay as of 2018. (Lamont, 2020) - The most popular ‘Pay Later’ business within Australia, New Zealand and US. (Built With, 2020) - 5.2 customers worldwide, with 11,000 new customers joining every day. (Financial Review, 2019) - Millenials (21-37 age) are seen to be the largest target market and customer base of Afterpay (TSMH, 2019)

- Technological advancements and developments made by Afterpays competitors need to be monitored, to produce a new innovative idea so customers don’t lose interest - The future use of emerging technologies such as; mobile devices, computer and tablets can be incorporated within the business - As technology develops, applications must be updated and developed to keep up with competitors and produce more innovative ideas - The Afterpay mobile application is available on Google Play and the App Store (iOS and Android mobile devices), (Afterpay, 2020) - Advertising of Afterpay is promoted online through social media use within; Facebook, Twitter and Instagram. (Afterpay, 2020) - Afterpay website provides all information and access for stakholders

4.4 Interpretation of the PEST analysis The completed PEST analysis provides examples from the external business environment that must be considered when the business idea is being developed. At the ideation stage of Afterpay, it is crucial to consider external conditions and stakeholder opinions to ensure success in moving forward from the seed stage, as well as viability within the business idea. Firstly, the socio-cultural factors of the target market, etc; age, gender, race, marital status, income, education, and employment have a large impact on the successfulness of the business idea based on which people the business targets. Economic factors within external events such as the current COVID19 can have a huge impact on the economy and decline the profit and successfulness that the business achieves.

5.0 Viability of the Business Idea The viability of the business idea can be evaluated through stakeholder satisfaction and determines how stakeholders were considered in achieving the business’s goals. Stakeholder expectations and satisfaction were highly valued within the seed stage of Afterpay The innovative idea of “pay for purchase over 4 easy instalments, with an interest-free payment schedule” (Afterpay, 2020), has satisfied over 5.2 million customers (Financial Review, 2019).

5.1 Evaluation An evaluation on the viability of the business’s idea must be made and include the three criteria: stakeholder satisfaction, competitiveness and effectiveness. A judgement must be formulated focusing on Afterpays current and alternative proposed strategies to improve the attractiveness of the market to its customers. A recommendation table has been created to identify Afterpays existing and alternative viable strategies and determine which strategy would be more effective within the business Afterpay through the five-point rating scale.

Existing: Application and online presence/ promotion

Stakeholder Satisfaction

Effectiveness

Competitiveness

4.9 stars out of 5 rating review for the application (Afterpay, 2020) Online and social media available to promote the product to customers over 13 (Instagram, 2019). Does not satisfy the stakeholder in any way other than promotion

With a reach of 61.9k followers on Instagram (Instagram, 2020), Afterpay has not been very successful in reaching customers via social media. The convenience of the application (Afterpay, 2020) encourages and persuades customers to continue making purchases

Competitors such as Laybuy, Splitit, Sezzle and Openpay. (Built With, 2020) also have an online presence and application to promote their businesses. Competes with rivals, shows products on the app tha...