Bob: Welcome, Nick Molnar, CEO of Afterpay, the guy who in just 4 years grew an idea into a $2 billion business.
Nick: Thanks for having me.
Bob: I am not a millennial, so I don't even know what Afterpay is. So, for our listeners out there that may not know, who are you and what do you have to do with retail?
Nick: Yes, of course. So, my background is from retail, my family was in jewelry. I sold the most jewelry on eBay in Australia, out of my bedroom when I was in university so my accent is Australian if it's difficult to understand. And we founded Afterpay about three and a half, four years ago. I built it with my neighbor and within three years we're taking the company public, listed on the Australian Stock Exchange and processed a quarter of online fashion in Australia. We launched here about 6 months ago in the U.S. and already have over 1,000 retailers live and half a million customers, so we're growing really fast.
Bob: And how old are you again, Nick? Just...
Nick: Twenty eight for another three weeks.
Bob: So, now everybody hates you entirely...
Nick: I'm nice, I promise you.
Bob: I know you're nice because we met just this week and we're already doing a podcast. So, I really appreciate that. You know, the thing with so many entrepreneurs always wanna say is, you know, what was the bug? What did you see the opportunity? You were selling jewelry and then suddenly you said, "I think I'm going to found this great idea." I mean, well, actually, before we get to that, would you explain the concept of Afterpay? I think I had said to you, it sounds like a reverse layaway program.
Nick: Yes, exactly, exactly. So, if you're buying an item online or in store for $100, instead of paying $100, the customer pays 4 payments of $25 every 2 weeks. We pay the retailer next day, and we take all of the risks. So, it's our responsibility to recover money from the customer on the due dates in the future. And, you know, the reason why it works is millennials just have this aversion towards a line of credit, they prefer to spend their own money and use debit cards. You know, it's not widely spoken about, but in the U.S., 2 out of 3 people aged 18 to 30 actually don't own a credit card, they use debit cards. So, this is their form of budgeting and how, you know, they wanna spread their payments.
Bob: Well, and I think it also...the thing that makes it so unique is, it also taps into the, "I want it now mode" and let's face it, this is a...these are intelligent people. You know, millennials, I was saying about this the other day, Nick, your generation, you know, kind of grew up with the Harry Potter phenomenon that everybody was reading. I mean, you were really intelligent and grasping all this knowledge. So, when I hear these ideas, I just think about the background that you have is pretty deep. So, why not think that you can do it? And when you see that market that two out of three don't have a credit card, I think something like a third also don't have driver's license, but they budget their cash, right? That's the big thing.
Nick: Exactly. I mean, yeah, they spend money different to any previous generation, which is fascinating. I mean, I turned 18, when the global financial crisis, 2008 recession happened. And, you know, that's what really was the defining moment that transformed how millennials spend their money. But I think you're right, I think we have some incredibly positive attributes as a millennial cohort. We tend to somehow get a pretty bad rap, but hopefully, when you dig down into the detail, you'll see that millennials do act differently. And a lot of it's driven just by the kind of world dynamics that we grew up in.
Bob: That's because it's all powered by avocado toast my friend. I'm just saying. You know, one thing that you upended the entire financial structure of most retailers. And, you know, one thing you and I were chatting about is the big difference is, credit card companies make money if you don't pay, and yet you don't charge them for this reverse layaway service. Correct?
Nick: Yes. So, when you think about, you know, how a traditional line of credit works, the credit industry makes money when someone goes late, and the longer they're late, the more money that they make. So, like the revolving cycle starts. So, you know, the credit industry is built up profiting from misbehavior, not good behavior. We've flipped it on its head where we charge the retailer a small fee instead of charging the consumer. So, from the customers' perspective, it's a free service and the retailer is prepared to pay because they wanna provide the customer with a great product and they wanna sell more and build a better relationship with them. So, it has really kind of flipped it all on its head and the whole core, you know, premise of that is trust, absolutely.
Bob: Well, and I think the other thing that's kind of interesting with you is the people come to the app to decide to buy. So, you have kind of inserted yourself into this trusted place that every retailer that we saw at NRF this week was trying to get in some way because they still operate as a transaction, whereas you've developed this relationship so that they come to the app first to see who takes Afterpay but even then, if somebody doesn't...if you're on a website, they can see it as well. Is that correct?
Nick: Yes, exactly. So, you know, from our own perspective, I mean, who would have thought that a payment product could build this kind of cult-like consumer movement. There's a group on Facebook called We Love Afterpay. It got a quarter of a million members and the products turned into a marketing channel. I mean, our retailers look at us as a partner from a, you know, new customer perspective, not as a payment solution. And if you go to, you know, Urban Outfitters, or Kylie Cosmetics, or Steve Madden Revolve, you know, any of these brands under the price, it'll actually say $100 or 4 payments of $25 by Afterpay. So, you know, the retailers really use it as a conversion tool.
Bob: I think you're making a marvelous product but I also...you're such an engaging young guy, I just wanna find out more about you. So, you worked in the jewelry business, and how did you come up with the idea? What was that moment that you said, you know, there might be something here because I know you didn't start off having this one idea, right? It kind of evolved over time. What was the need, and how did you get going with it?
Nick: For me, the jewelry industry is very challenging online. I think our conversion rates were less than 1%, it was kind of 0.8, 0.9 of a percent. So, there was always this conversion challenge that we were always trying to solve. And then what ended up happening was, you know, when I went to university, people were just spending money on debit cards, people just spent money differently. And, you know, I kind of found it really fascinating that the world had shifted but no one was really talking about, you know, this new way of transacting. And so, you know, I think coming and growing up around retail my whole life and then learning about this generational shift in payment behavior, there was just this aha moment that came together where I just thought maybe you can make layaway cool. You know, if you can give the customer the product up front, allow a millennial to spread that payment, I think it might drive this kind of almost borderline illogical reaction and it's just gone...it's just it's been amazing.
Bob: Well, I know an awful lot of retailers are listening to my podcast and they sometimes have trouble making payments to vendors. You know, there's comes as lean months where you're like, "Oh my gosh." Well, I can't imagine what your lean months must have looked like because you're going through and you are having to not only get these new people into the app but more importantly, you are paying top dollar back to these retailers and then you're saying, "Oh, I'll get that money back," so that float is all on your back. Right?
Nick: Yes. And I mean, that's the whole thing, it all starts with trust. I mean, we...Anthony and I started by personally lending our own money, you know, we were fronting up the money to the retailers. We didn't expect to grow as quickly as we did, so in the blink of an eye we were fronting up a very substantial amount of money to our retail partners which led us to list the company on the Australian Stock Exchange. But, you know, the whole premise of the business is saying, "You know, there's a stranger that I don't know, and I'm gonna trust you to pay me back." And that's really interesting and I think has amazing dynamics to it. I mean, when you think about these key new age, you know, engagement pieces or, you know, things that you use in your life, they've all started from a shift in paradigm of what's right. I mean, when you look at Uber as an example, it's also all built on trust.
When you get in an Uber, it's like you're doing something that you were told as a child to never do, it's like, "Don't get in a car with a stranger." And let alone get in a car with a stranger and eat their lollies, you know. But then you do it once and you're like, "Hey, technology enabled me to do something really incredible and I can't see myself doing it any other way." And I think that's the whole premise of Afterpay. I mean, from a retailer's perspective we're saying, "We'll front the money, you know, we've got your back," and from a customer's perspective, we're saying, "We trust you and we want you to pass back on time because if you don't, we lose out because we've paid the retailer."
Bob: Long-time listeners know about Melanie Tillett in the U.K. and how she found that online was really such a big deal. In fact, she found women who would never post pictures online of themselves now did it regularly in their clothes that they bought because they feel such a brand connection. I think so many brands think, "Oh well, our customers trust us," but really what they have been forced to do is into a transactional business. You know, they're like a secret lover, like, "Hey, I'll come to your store and buy this with my 20% off coupon, but I'm open to the next guy down the way who's willing to give me a buy one, get one free."
And so all of these little trust moments are all being destroyed at the brand level like, you know, the big boys, without naming them all, have kind of become this transaction where they're always begging, "Please, please come to me," and you've upended it by saying, "Oh, no, no, no, the trust is gonna be that we're gonna give you the money and you're gonna be able to..." Because of their fears of spending, right, they don't want a credit card, they've seen what it did to their parents, they've seen what it did to their college debt and all of those kind of things. So, again, it's a smart choice that you're writing which I think again is so cool. And again another reason I don't think millennials deserve the bad rap they get, you guys are the hopeful ones, you're planning ahead.
Nick: I think that's absolutely right. And, you know, this kind of cycle of discounting that we're in at the moment is a dangerous one. I mean, part of our benefit is that we can help people maximize full price transactions, because there's kind of about the same discount when someone's using Afterpay. And, you know, I heard someone at NRF put it so eloquently said that, you know, when you're driving that $20 coupon, as you referenced, you're buying volume, but you're not getting a consumer to buy your purpose.
Bob: That was so well put.
Nick: Yes, and when you look at these new age brands, whether it's Everlane, or ThirdLove, or Kylie Jenner's beauty business, you know, they're very human in how they engage and it's kind of not human to engage on social like a human but they do it really, really well and people then buy into their purpose and it creates a real relationship with their consumer.
Bob: I would agree. You know, I'm a Ted Baker fan, I just love their product, I love the stores, the people and all of those things, and I think I was telling you about Hammitt Bags, he was also on the podcast, my first guest, Tony Drockton, and you have this passionate following that say, "I'm your girl," you know. And it's different. This isn't based on Instagram and likes and all that, this is actually based on real customers. That's all that matters to me is. I don't give a damn if you give me a like, you actually gave me money. And so, you have the most valuable information anywhere. Why American Express or someone hasn't bought you yet, I don't know but...
Nick: Yes, I mean, I think the really amazing thing is that you've got a lot of these brands that are kind of curating product with that relationship. So, to take another scale [SP] at your question, you know, you look at a lot of these beauty brands that consumers are actually helping decide what they produce next. And that's what creates this people power movement, we have just happened to do that from a payment landscape perspective. I mean, we're the second largest traffic driver behind Google now in Australia, it's pretty amazing. And we never anticipated that that could happen, but even in the U.S. we're sending, you know, a few million leads out to our retailers each month. It's a marketing channel, it's not a payment channel.
Bob: You must have the demographics. Is it definitely the millennials, your under 33, because the boomer would use credit cards, is that generally it or...
Nick: Yes, so our early adopting customer is that kind of 20 to 28-year-old, however, our average age now is 33. So, what you are finding is that millennials are influencing the older generation to say, "Hey, maybe you should consider spending money differently." And once someone uses Afterpay once and they realize that Afterpay is aligned with them, you know, we're not trying to profit from them going late, that's where this incredible relationship and, you know, affiliation begins.
Bob: Yes, great. What do you think the best advice you ever received was?
Nick: Well, the last kind of four years have just been full of exponential growth. And, you know, my co-founder would always say to me, "Dare yourself to be brave. And if you're not coming into work every day and feeling challenged, then you know, you probably got to push yourself a little bit harder." And so, you know, there's a lot of entrepreneurs out there who, you know, will do it part-time, who might be building a business while they've got another job. It's very difficult to do that, you kind of have to be all in or not in, and it's difficult to walk away from a stable paycheck. But I think if you believe in something, you've really got to go for it.
Bob: Oh my gosh, that is so true. I did the same thing. I was trying to think I could be Retail Doc and then I did consulting gigs, people would say, "Well, can't you stay on?" and I kind of did it and I stayed with this one for nine years, and at the seven-year anniversary I was thinking, "This isn't good." And then you reach that moment when you're like, "Oh my gosh, I have not been doing what I really wanted to do because I was so worried and fearful of the future instead of saying, "I know I'm gonna do well." And once that switches... And that's the same thing for our listeners, you know, I get it, my gosh, right here, one more podcast on hustle and, "Do your day job and then hustle at night." And, you know, it just isn't realistic because your mind really needs to focus on one and say, "That's what I'm gonna go for and that's what's gonna drive me. And more importantly I'm gonna be able to build myself, image up, from what I'm doing there instead of feeling like I'm a fraud at one or the other." Does that make sense?
Nick: Yes, completely. And it goes a level deeper which is like, you know, within Afterpay we've got 350 people who have taken a risk, moved away from secure jobs to believe in a purpose and build something special. And so, I think the right work environment creates that entrepreneurialism. So, there's different levels of the spectrum. You know, you can either go out and be a full-blown entrepreneur or you can get that entrepreneurial spirit for the right job.
Bob: Absolutely. Well, speaking of risk, you decided to have a child and your child is what, three weeks old now?
Nick: Four weeks tomorrow. I'm still counting days I think.
Bob: Pretty soon he's gonna be...he's two and a quarter. Oh, sorry.
Nick: Hey, hey, come on, come on Bob.
Bob: Whoops, he's three. [inaudible 00:17:33] my own quotes, my friend, what the hell. So, when you feel overwhelmed or unfocused because it sounds like you're on the ride of your life or you lost your focus temporarily, what do you do?
Nick: I mean, the key for me is just building and surrounding yourself with an incredible team. You know, you need the right group of people that go through every difficult decision with you and everyone's got each other's back. You know, I think there's... Sometimes it's difficult to be present when you have so much going on, but if you have the right people around you and you're all jointly, you know, in the detail and making decisions together, that's generally my, you know, my fallback. If I'm having a hard time or trying to figure out a difficult decision, it's just getting the people around me who I know I can lean on and the right outcome generally prevails.
Bob: No, I like that. I had to rent a car to drive up here yesterday, as a matter of fact, that I came in and while I'm waiting for her, I happened to be able to look in the manager's office and he has this big yellow sign, it's kind of like you get if you were at a conference and they had these long signs, like the UN or something, and it had the Hertz logo in the left and it just said, "Be Here Now," in all caps. And he had it right by his computer, and I thought that was really quite interesting that the company was saying it is about being here. You know, it's great to be thinking about other things. You got distractions, but at the end of the day, nothing works unless you're all here, right?
Nick: Yes. And everyone around you, they vibe that, they feel that. You know, if you're in a meeting and you're not present, it's generally written all over your face.
Bob: No, that's very true. Now, when you were in jewelry, what was the biggest challenge that you think you came into with that?
Nick: Well, the really interesting thing about the jewelry market is that you're not...you're never really comparing apples with apples. You know, it's a very high margin business, it's not the most frequently purchased. So, no one really knows what should be the cost of a, you know, blue sapphire gemstone ring in white gold. And so there's this emotional connection that's made with the brand, there's an emotional connection that's made, you know, generally with the time in your life that you're making that purchase. But it's difficult because, you know, it's so infrequent that it's kind of there's this component, sort of, "Is it real? And am I getting...you know, am I not getting ripped off?" And so, the brand that overshadows all of that can...you know, genuinely is the prevailing fact. I mean, the notion that you should spend three months in your engagement ring was three months of your work salary. And your engagement ring was just a marketing campaign to try and give context to, you know, how you think about that moment.
Bob: Yes, I like that. I know, one of the things I learned when I was working with jewelers, this one jeweler, and he was really great, and he said, he's selling a bride's set to this guy, or, you know, a bridal ring, and he says, "Now when you give it to her, don't be an amateur and look down at her hand. Be the pro and look at her eyes, you'll never see that again." And I always thought like, "Dude, no wonder you were the bomb. No wonder you were the bomb." I mean, just such a great idea. Well, I don't want to take up too much of your time, I know you're probably getting no sleep these days.
Nick: Yes, a lot less than before. I thought I was getting no sleep before.
Bob: Yes, I would think so. So, tell me something good about retail. What's something good about retail?
Nick: Yes, I mean, look, to me, there's a lot of amazing things happening at the moment. The really interesting trend, from my perspective is this concept of, you know, exclusive drops. And a lot of businesses now, you know, selling out product in a very short time frame and the supply chain that has to go with that, but as you see, kind of influencers come through the market and the volume they can push through in a short window of time, that's been really fascinating for me. So, you know, this notion of exclusive drops, I think, has really come about over the past 18 months and you're seeing more of the bigger brands now start to play in this space. Yes, that's the most interesting trend from my perspective.
Bob: Absolutely. Well, even though we're not all under 33, how can they find out more about Afterpay and your great services?
Nick: For sure. Well, if you visit our website afterpay.com, you'll see our directory and just how our product works. And obviously feel free to reach out to me or anyone else in our team. We'd love to expand our retail partnerships in the U.S. market. So, we're around any time to talk, we're between San Francisco and New York and all over the U.S.
Bob: Excellent. Well, you've been a gracious guest today, Nick, and I really appreciate it. And I expect you to have even more success in the coming years ahead.
You might also want to check out Nick on the Retales podcast, "Inside the Millennial Mindset" here.