Business Model Canvas of Afterpay: A Comprehensive Analysis

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Central Queensland University, Australia
Term – 2019
MGMT20143 ASSIGNMENT 1
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1

Table of Contents
Introduction......................................................................................................................................3
Business Model Canvas...................................................................................................................4
Customer segment........................................................................................................................4
Key activities................................................................................................................................4
Key Partners.................................................................................................................................4
Value Proposition.........................................................................................................................4
Distribution Channels..................................................................................................................5
Customer Relationships...............................................................................................................5
Revenue Streams..........................................................................................................................5
Cost Structure...............................................................................................................................5
Key resources...............................................................................................................................5
Explain the key interrelationships that exist across the nine building blocks.................................6
Critical Success Factors...................................................................................................................7
Factors impacting the success of the business model......................................................................8
Recommendation and conclusion....................................................................................................9
References......................................................................................................................................10
Appendix........................................................................................................................................11
2

Introduction
Afterpay is an Australia-based new start-up founded in 2015 by Nick Molnar to provide a new
way to the Australian population for making payments. The business model of Afterpay refers to
creating an easy-to-use payment system for purchasing instantly and paying off the total amount
in 4 instalments. This business model is highly innovative in the context of Australian retailing
industry (Afterpay.com, 2018). One of the key aims of the company implies the transformation
of the status quo of the retailing sector of Australia for providing a better shopping experience to
customers. The company is operating in the Australian online payment industry and serves the
online and offline retailing markets of Australia. The business model of Afterpay proves that it
has identified the customer need for shopping what they desire without the stress of making an
instant payment. The critical service provided by the company constitutes an instalment payment
facility to the customers purchasing products and services of associated partners online or
offline.
3

Business Model Canvas
The business canvas model of Osterwalder & Pigneur reflects on the nine building blocks or
critical segments of the business model. Customer relationship, customer segment, key partners,
value proposition, distribution channel, revenue stream, cost structure, and meaningful activities
are the key segments. This model provides Afterpay with a clear insight into the innovation in
the business model using the nine building blocks.
Customer segment
The key customer segment of Afterpay implies the online and offline shoppers of the associated
retailing companies of Australia. These customers are those shoppers who possess sound
financial health. Afterpay provides interest-free payment facility in instalments to the shoppers
for enhancing the shopping experience.
Key activities
Afterpay offers a secure payment process to shoppers for a better shopping experience. It
provides 24/7 payment services and support to the shoppers. Moreover, it also undertakes the key
activities involving promotions, marketing, partnerships, and research and development.
Key Partners
Afterpay provides its instalment based payment facility to the shoppers through the association
with banks and other financial institutions. Other key partners are the branded companies named
as The Iconic, Asos, Adairs, Seed heritage, Sheike, and Princess Polly (Ojasalo, Jukka, &
Ojasalo, Katri, 2018). The company has established partnerships with these branded companies
through the merchants and retailers selling the products of these companies both at online and
physical stores. The payment service providers can also consider as critical partners such as
MasterCard and Visa.
Value Proposition
It implied as "Convenient and secured credit arrangement to the customers for desirable
shopping with no additional cost and connecting customers with the brands with the promotion
of customer loyalty and reduced returns to the retailers.”
4

Distribution Channels
The distribution channels of Afterpay comprise of the online and physical stores of the
associated partners. Website and online marketing and advertising encompass under the
distribution channels.
Customer Relationships
Afterpay is dedicated to provide 24/7 support to the customers and provide free membership for
maintaining a healthy relationship with customers. It undertakes regular and effective
communication with the customers for eliminating the chances of the late fee which strengthen
the customer relationship.
Revenue Streams
The key revenue streams of Afterpay are more than 4% fee from the partner companies, retailers
and merchants as well as the late fee from the customers on late payment (Pieroni, Mcaloone, &
Pigosso, 2019).
Cost Structure
The cost structure of Afterpay business model includes the security costs of customer
transactions, the development cost of the secured and multi-linguistic payment system, and
customer acquisition costs.
Key resources
The Company possesses the key resources of associations with big brands, research and
development, a secure payment platform for customers, and financial resources.
5

Explain the key interrelationships that exist across the nine building blocks.
The nine building blocks of Aftepay share a relationship that assists in overall sound
performance. The facility of secured payment in 4 instalments and association with giant and
well-known companies help in capturing a large number of customers belonged to different
target markets. A high number of business partners helps in attaining a higher level of revenue
that can further enhance profitability. The company sustains the existing customers by the
maintenance of customer relationships (Chen, 2017). The costs incurred in the business model
enable Afterpay to provide the secured payment system and transactions to the shoppers and
acquiring a vast customer base. The distribution channels help the customers in accessing the
products and services offered by the big brands.
Further, the customers enjoy the secured and convenient payment based on the instalment system
of Afterpay after shopping from these big brands associated with Afterpay. The principal
activities of Afterpay have helped in attracting a large number of financially healthy customers
as it has made shopping easier and more convenient for the shoppers. The cost structure has to
enable Afterpay to undertake the activities of the business model more effectively for the smooth
operations of the overall company.
Also, the cost structure is concerned with the promotion of customer loyalty and the
improvement of conversions. It helps in attracting the retailers and merchants as well that further
affects the company revenue positively. Afterpay has an association with more than 11,500
retailers and merchants that helped in generating more than $60.7 million. It is the outcome of
the inter-relationship among the crucial segments of Afterpay’s business model that the company
has innovatively functioned in the competitive business environment of Australia. With the value
proposition and key activities, it becomes easier for the company to gain trust and loyalty from
the customers (Joyce, & Paquin, 2016). The relationship established among the nine building
blocks of Afterpay business model has entirely contributed to gaining a competitive advantage in
the Australian retailing industry. Moreover, such a competitive advantage can be sustained by
Afterpay in the long run. All the segments in the business model of Afterpay are affecting the
customer segment directly or indirectly that is evident with the fact that Afterpay owns more
than 1.5 million customers.
6

7

Critical Success Factors
Attaining sustainable success has become a highly complicated and complex task for the
companies. The success factors are required identification and consideration for the lasting
success of the companies. Following are the critical success factors for the companies in
attaining the objective of sustainable success and performance:
a. Fierce competition in the business market has emerged the requirement for attaining a
clear market position. Clear market position refers to where the company stands or how
easy it would be for customers to switch to a new company.
b. Continuous improvement enables a company to identify the opportunities and
improving the processes or products from these opportunities. It highly considers that
constant improvement should be an ongoing process for attaining sustainable growth
(Pourhanifeh, & Mazdeh, Mohammad Mahdavi, 2016).
c. Sustainable success has emerged a new trend of collaborations or partnerships with a
successful company. Collaborations and partnerships not only help in business expansion
overseas but also reducing the failure risk.
d. Innovation in products or services and processes has become a vital necessity for
survival in the competitive business environment. Innovation has always contributed to
realising the competitive advantage for a good market position.
e. Internal management works for managing the efforts and resources of the internal
environment with the opportunities, trends, and threats of the external environment. The
companies that can identify internal management as one of the critical success factors
attained a high level of success and performance in the sustainable context (Resende et
al., 2018).
8

Factors impacting the success of the business model
a. In the context of Afterpay, partnerships are of utmost importance for the survival of the
business model as the company runs from alliances with retailers and big brands.
Partnerships might be an excellent strategy for Afterpay as it might enhance the
productivity and performance of the company. The business model might get improved
with partnerships as it might become easy for Afterpay to expand beyond Australia. Such
expansion using partnerships might affect the customer segment mainly along with the
cost structure and customer relationships.
b. Competition is an uncontrollable factor for Afterpay that has been expanding its wings
rapidly. Replication of business idea or product has become a common trend in the highly
competitive business environment (Galbreth, & Ghosh, 2013). High competition can
affect the business model by fading the attractiveness for the customers. It might also
lead to difficulty in finding the right partners and customers as well.
c. Innovation and uniqueness in the business model help in attracting a large number of
customers with fewer efforts. It is because the customers become curious about the
innovative and unique aspect of the products and services. Not only has this, but
innovation might also assist in keeping a competitive edge while planning for company
growth and development. The other segments become easier to operate and maintain
while integrating innovation in the key activities (Bouncken, & Fredrich, 2016).
However, the secured payment facility to the customers might also involve the online and
security related risks that can lead to substantial financial and customer loss.
9

Recommendation and conclusion
I would give high consideration to the research and development as it assists in better
identification of the customer and market needs and wants. I would establish more partnerships
with retailing companies or famous brands operating in different segments such as furniture or
home products. I would integrate the strategy of competitor analysis in the business model for
analysing how the company is better or worse than the competitor firms (Simmert et al., 2018). I
would expand the investment in technological advancements for attaining competitive advantage
with such technologies. Moreover, I would make sure to develop a clear vision and stick until the
end.
10

References
 Bouncken, & Fredrich. (2016). Business model innovation in alliances: Successful
configurations. Journal of Business Research, 69(9), 3584-3590.
 Chen, T. (2017). Exploring the Systematic Business Model Innovation: Designing
Architecture for a Cloud-based Collaboration Support Environment. International
Journal of E-Collaboration (IJeC), 13(2), 45-63.
 Galbreth, M., & Ghosh, B. (2013). Competition and Sustainability: The Impact of
Consumer Awareness. Decision Sciences, 44(1), 127-159.
 Joyce, & Paquin. (2016). The triple-layered business model canvas: A tool to design
more sustainable business models. Journal of Cleaner Production, 135, 1474-1486.
 Ojasalo, Jukka, & Ojasalo, Katri. (2018). Service Logic Business Model Canvas. Journal
of Research in Marketing and Entrepreneurship, 20(1), 70-98. Afterpay.com, (2018).
About Afterpay. Retrieved from: https://www.afterpay.com/en-AU/about-us
 Pieroni, Mcaloone, & Pigosso. (2019). Business model innovation for circular economy
and sustainability: A review of approaches. Journal of Cleaner Production,215, 198-216.
 Pourhanifeh, G., & Mazdeh, Mohammad Mahdavi. (2016). Identifying the critical
success factors of organization with Analytic Hierarchy Process approach case study -
Iran Argham Company. Problems and Perspectives in Management : PPM ;
International Research Journal, 14(4), 54-60.
 Resende, L., Volski, Isabela, Betim, Leozenir Mendes, Carvalho, Gustavo Dambiski
Gomes De, Barros, Rodrigo De, & Senger, Fabio Pietrobelli. (2018). Critical success
factors in coopetition evidence on a business network. Industrial Marketing
Management : The International Journal for Industrial and High-tech Firms, 177-187.
 Simmert, B., Ebel, P., Peters, C., & Christiane Bittner, E. (2018). Conquering the
Challenge of Continuous Business Model Improvement. Business & Information Systems
Engineering, 1-18.
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Appendix
Appendix 1
Key
Partners
Banks
and
financial
institutions
Retailers
and
merchants
Big
brand
companies
Payment
providers
MasterCar
d and Visa
Key Activities
24/7 support to
customers
Secured and
convenient
payment services
Marketing of the
company
Research and
development
Establishing
partnerships
Value Proposition
“A secured
payment platform
with no extra cost
to customers for
great shopping
experience
instantly."
Customer
Relationships
Full-time support
and free
membership to
customers
Regular
communication
with shoppers for
avoiding a late fee
Customer
Segments
Online and
offline shoppers
Financially
healthy people
Male and
Female
Key Resources
Financial
resources
Secured payment
system
Partnerships with
big brands and
retailers
Research and
development
Channels
The online
channel through
website or others
Physical stores of
the associated
companies
12