Afterpay co-founder points to Gen Z, Millennials’ growing economic clout

Afterpay co-founder Nick Molnar says Generation Z and Millennial shoppers are close to accounting for half of all retail spending by this end of this decade, predicting their aversion to credit cards will push debit spending more widely across the economy.

Molnar, an executive at Afterpay’s owner, Block, added the cost-of-living crisis had spurred greater demand for buy now, pay later (BNPL) products from younger consumers, likening the growth to the surge the company experienced during the COVID-19 pandemic.

Afterpay co-founder Nick Molnar.Credit: Dominic Lorrimer

Afterpay, founded in 2014, is the country’s biggest BNPL operator. It provides digitally approved interest-free loans, which borrowers repay over four instalments. The company, which has 3.5 million Australian users and counts Millennials and Gen Z as its main customers, is a key competitor to the banks’ credit card businesses.

As the government prepares to regulate the fast-growing BNPL sector, Molnar on Tuesday was bullish about its long-term prospects as a competitor to traditional bank lending, pointing to younger generations’ preference for debit cards over credit cards.

“At the highest level, in 2020 Millennial and Gen Z consumers represented 30 per cent of all retail spend in the Australian economy. By 2030, that consumer will represent 50 per cent of all retail spend,” he said.

“That consumer still deeply prefers a debit card over a credit card. Over 90 per cent of our consumers use a debit card, not a credit card. And so you are seeing this debit card economy continue to get more pervasive and more prevalent, and our Afterpay consumers are looking to Afterpay to manage as much of their spend as possible,” Molnar said.

Afterpay says 44 per cent of its customers are Millennials (born between 1981 and 1996) and 28 per cent are from Gen Z (born between 1996 and 2010). Since launch, it has expanded from its roots in the fashion industry to other sectors including travel, food, toys, electronics and healthcare, and this year it raised its maximum credit limit to $4000 for customers who meet certain criteria.

The federal government has said it will move to regulate BNPL products including Afterpay this year, and Molnar said the regime should recognise that Afterpay was critically different to credit cards, which are built on charging customers interest.

He said the company had long supported a set of common rules across the industry, and signalled the government recognised BNPL’s role as a source of competition.

“There’s been a clear recognition of not stifling innovation. There’s been a clear recognition that competition in the banking industry is really good,” Molnar said.

On Tuesday, Afterpay released research it commissioned on the company’s economic contribution which said Australian customers had saved $127 million in fees and interest compared to credit cards in 2023, while 65 per cent of merchants said they had gained exposure to new customers.

Afterpay was bought in 2021 by US fintech Block in a deal that valued the company at $39 billion, but share prices of BNPL businesses subsequently fell sharply as rising interest rates hit technology valuations and raised fear of bad debts.

More recently, however, sentiment towards the industry has improved, with shares in Afterpay’s local rival, ASX-listed Zip, more than doubling in the past year. Shares in Block, which is US-based with a dual listing on the ASX, are roughly flat compared with a year ago – and down about 15 per cent in 2024.

Morningstar analyst Shaun Ler said there had been some improvement in sentiment towards BNPL firms, but this was also being driven by hopes of interest-rate cuts, which have rekindled investor interest in early-stage tech stocks.

While some smaller BNPL firms have been wiped out, Ler said the pay-in-four model has also been adopted by big rivals such as banks. “The BNPL business model is getting pretty commoditised,” he said.

Despite the weak economy, Molnar said the company was experiencing a “tailwind” from consumers who were making greater use of BNPL loans as a way of managing their cash flow at a time of high inflation.

Afterpay does not disclose its bad debts for Australia, but Molnar said the company’s bad debts remained low – pointing to a slight fall in its global bad loans in its most recent quarter.

“Similar to the COVID period you’re very much seeing in this present economic environment growth get a tailwind, but losses are at some of our all-time lowest levels.”

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