Name: Chia Sue Ern

Student ID: 28095510

Tutor: Ms Adlina

Tutorial time: Wednesday 1pm-2pm

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Executive Summary

This report provides a thorough analysis on the Australian-owned brand,

Afterpay, and its international expansion into the UK. The paper will start by
introducing the brand and the service it offers, briefly explaining the strategic
reasonings and motivations of why Afterpay chose the UK to expand in. The body of
the report contains 6 elements which revolve and are relevant to helping the audience
understand Afterpay’s decision. Each element has a strong supportive theory behind it
to ensure validity and accuracy. For example, the competitive landscape is explained
using the PEST tool, Afterpay’s resources are illustrated using the Resource Based
View model, the internationalisation of Afterpay is demonstrated by the Born Global
theory, amongst others. All significant sections of the report has been properly
structured into the table of contents. The results from these 6 elements were consistent
with similar findings online, which is that Afterpay is successful in penetrating the
UK market. The digital payment service provider has made a surprising return on
investments, a growing rate of rand loyalty and awareness, as well as new users trying
the service everyday.

This report finds that Afterpay has a wide range of capabilities and competencies
that is useful in an innovative firm. The recommendations to further improve business
operations include a longer warning time before charging a late payer with a penalty,
and the importance of incorporating improved business ethics. This report also
acknowledges the fact that there are some limitations. The main one would be the lack
of available journal articles and professionally-written articles on online databases.
Due to this reason, there might be an absence of qualified references, as most
information and data was taken off online newspapers.

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 Table of Content

Executive Summary…………………………………………………………………..2
1.0 Introduction……………………………………………………………………….3
2.0 Afterpay’s Competitive Landscape……………………………………………….5
2.1 PEST Analysis………………………………………………………………..5
2.1.1 Politics………………………………………………………………....5
2.1.2 Economy……………………………………………………………….5
2.1.3 Social……………………………………………………………….….6
2.1.4 Technology………………………………………………………….…6
2.2 Organisational Implications………………………………………………….6
3.0 BNPL Competitive Landscape in the UK………………………………………...6
3.1 Competitive Analysis………………………………………………………...7
3.1.1 Market share…………………………………………………………...7
3.1.2 Service provided……………………………………………………….7
3.1.3 Penalty/late fee…………………………………………………………7
3.1.4 Installment period…….………………………………………………...7
3.2 Afterpay’s Competitive Positioning…………………………………………..7
4.0 Afterpay’s Resources……………………………………………………………...8
4.1 The Resource Based View……………………………………………………8
4.1.1 Tangible Resources…………………………………………………….8
4.1.1.1 Operating Locations……………………………………………..8
4.1.1.2 Finance…………………………………………………………..8
4.1.2 Intangible Resources…………………………………………………...9
4.1.2.1 Payment Service………………………..……………………….9
4.1.2.2 Business Strategy...……………………………………………...9
4.1.2.2.1 Partnership………………………………………………...9
4.1.2.2.1.1 TouchCorp………………………………………….9
4.1.2.2.1.2 Dovetail…………………………………………….9
4.1.2.2.2 Branding…………………………………………………..9
4.2 VRIO Framework Analysis…..……………………………………………...10
5.0 Afterpay’s SWOT Analysis…………………………………………………...…10
5.1 Internal Analysis…………………………………………………………….10
5.1.1 Strengths………………………………………………………………10

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 5.1.2 Weakness……………………………………………………………...10
5.2 External Analysis…………………………………………………………....10
5.2.1 Opportunities…………………………………………………………10
5.2.2 Threats………………………………………………………………..11
5.3 Location Decision…………………………………………………………...11
6.0 Internationalisation of Afterpay………………………………………………….11
6.1 Afterpay’s Internationalisation Process: A Born Global Firm…….………...11
6.1.1 Phase 1: The Introduction Phase…...…………………………………11
6.1.2 Phase 2: Growth and Resource Accumulation………………………..12
6.1.3 Phase 3: Break out and Required Strategies…………………………..12
7.0 Recommendations………………………………………………………………..12
7.1 Notify customers 2 days before collecting £6 late fee………………………12
7.2 Implement suggestions by the Senate Economics Reference Committee…...13
8.0 Conclusion………………………………………………………………………..13
9.0 References………………………………………………………………………..15
10.0 Appendix………………………………………………………………………..21

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1.0 Introduction
Afterpay is a service that operates only on e-commerce websites that provides the
unique digital payment option of ‘buy now pay later’, or BNPL (Ibrahim, 2018). The
concept is relatively simple, it provides a service whereby a user can purchase a
product and pay for it over 4 installments, fortnightly. Afterpay is interest free, and
does not incur any extra cost to the customer unless they have not made a due
payment on time. This multi-billion dollar company was founded in Australia back in
2014, and its business spread like wildfire especially in the millennial market
(Kauflin, 2018). Due to its prevalent success in its local market, the founders have
expanded the service to the US, New Zealand, and most recently, the UK. According
to Afterpaytouch (2018a), the strategic entry mode chosen to enter into the UK was
a Share Purchase Agreement with their strongest competitor, Clearpay, thus obtained
90% of its shares. Not only that, Afterpay decided to launch under the Clearpay brand,
using the same logo and technology (Kruger, 2019). This was to ensure a smooth
transition into the UK market, as the corporate entity already had an established
operations in market and gave access to existing contacts, merchants, and valued
employees. The motivations behind this decision was clear as day: the UK was the
right market to expand in.The first strategic rationale was that the e-commerce
industry in the UK is absolutely booming. Since a decade ago, the UK e-commerce
industry has been growing steadily and the overall growth was 37% from 2008 to
2011 (UNIDO, 2017) (refer to figure 1). As the e-commerce market advances, there is
an indirect demand for disruptive innovation that will create a whole new target
market. Additionally, the UK online retail sector contributes to a total of 77.63billion
Pounds in 2017 alone, the largest growth in Europe (Centre for Retail Research, 2017)
(refer to table 1). Secondly, the millennials contribute to a third of the UK
population, which translates into a larger amount of purchasing volume (Goshtai,
2019). The third motivation would be that millennials in the UK are leaning towards
‘always-at-hand’ digital payment methods, and are willing to test out and diversify
mobile transactions, such as Apple Pay (Mamonova, 2019). The report will begin by
using the PEST tool to critically analyse the UK environment which will give a solid
foundation as to understand why Afterpay chose the UK to expand in. The
competitive analysis will demonstrate relevant competitors and their contribution to
the industry. Besides that, a list of priority resources will be thoroughly explained
using the Resource Based View theory. The SWOT will compile previously

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mentioned details into a table, and then the location decision of Afterpay. Next would
be the internationalisation process of Afterpay followed by suitable and practical
recommendations. The goal of this research paper is to demonstrate how Afterpay
managed to expand in the UK, gathering materials from various sources and
compiling them into one complete report.

2.0 Afterpay’s Competitive Landscape

2.1 PEST Analysis

Marketline’s (2015) in depth analysis of the UK will guide the PEST framework, as
the report critically analyses all aspects from four relevant parameters: strengths,
challenges, future prospects, and risks. Other relevant information includes online
articles from several newspapers, to assess more recent change in situation, mainly
BREXIT.

2.1.1 Politics
UK is overall stable and excellent, as it is a member of the G8, has several permanent
members in the UN Security Council, and is active in the North Atlantic Treaty
Organisation (NATO) to promote national interests (Marketline, 2015). However,
BREXIT has dramatically impacted the country, and Theresa May resigned just a few
months ago from failing to propose a satisfactory plan (Mueller, 2019). The most
significant event would be the possibility of the UK leaving the EU without a formal
trade agreement, which has caused an uproar. This is because if there is a no-deal
BREXIT, there will be massive political instability.

2.1.2 Economy
According to Harari (2017), UK is the 5th largest economy in the world (refer to
figure 2). However, the economy is currently kept afloat due to high consumer
spending and government expenditure in these uncertain times (The Guardian, 2019).
The risk of a no-deal BREXIT is causing panic in FDIs and exports, not to mention
the added tension from the current US-China trade war. Additionally, there is a
currency depreciation as the market prepares for BREXIT, and it is at its lowest in two
years (Davies, 2019).

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2.1.3 Social
From a social standpoint, the UK has a large consumer market, and a third of that are
millennials (Goshtai, 2019). Working millennials are most concentrated in London,
and the employment rate of this segment was flying high number of 82.1% (Brown et
al., 2017). US News (2019) also ranked the UK as the top country for education,
measured by the public education system, attendance in tertiary education, and quality
education.

2.1.4 Technology
The UK is has a tech industry which is growing at a rate of 4.5% between 2016 and
2017 (Flinders, 2018). Unfortunately, some believe that unless the right deal is
established with the EU, BREXIT could negatively affect the growth of the sector as
there will be a change in trade agreements.

2.2 Organisational Implications

It is apparent from the above analysis that the most feasible change in scenario would
be BREXIT. How exactly does this affect the tech and innovation industry,
specifically Afterpay? If the UK decides to stray further from the EU, the
technological landscape will definitely be more shaky as until a sustainable alternative
is confirmed (Abrahams, 2018). However, if the UK maintains in the current
European Economic Area, there will be little to no changes. From a consumer
standpoint, e-commerce spending has increased because consumers have the
advantage of browsing through various deals online in order to save during these
uncertain times (Scalefast, 2019). With that said, Afterpay’s presence is a success in
the UK because by paying fortnightly installments, the customers have the perception
that they have the ability to better control their spending.

3.0 BNPL Competitive Landscape in the UK

The BNPL phenomena has been flourishing in the UK, as statistics show that at least
one person out of four has tried the service (Shields, 2018). The first competitor will
be Paypal, which has been in the market for about a decade, and has a variety of

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features such as Paypal Credit (Lunden, 2016). Laybuy entered the UK market after
facing tremendous success in New Zealand, and partnered up with Footasylum to
adopt the BNPL concept. (Schaverien, 2019). Lastly, a Swedish e-commerce firm
called Klarna is also building up its digital payment presence in the UK.

3.1 Competitive Analysis

3.1.1 Market Share
Paypal has been used by 40% of e-commerce consumers in the UK at least once
(Ecommerce news, 2019), as it had first-mover advantages by being an innovative
payment method all the way back in 2007 (Newswatch, 2019). Both Laybuy and
Klarna have much lower market share, 7.44% (SimilarWeb, 2019) and 5.03 (Enlyft,
n.d.) respectively. Afterpay is located in between these three competitors, having a
market share of 14.33% (Datanyze, n.d.).

3.1.2 Service Provided

Afterpay, Laybuy, and Klarna specialises in providing the BNPL service but Paypal
has a variety of features ranging from online money transfers to BNPL. (Newswatch,
2019). These providers also have functional mobile apps that allows them to pay for
their products in selected brick-and-mortar stores.

3.1.3 Penalty/late fee

For Afterpay, a late fee of £10 will be charged and an additional £7 if payment is not
made after 7 days (Dutta & Lien, 2019). Klarna will charge an interest of 18.9% of
the purchase amount (Richardson, 2019), Laybuy will charge £6 (Nixon, 2019), and
Paypal will charge £12.00 for late payments (Paypal, 2019).

3.1.4 Installment Period

Afterpay’s policy is to equally divide the purchase into 4 installments, and is to be
paid every fortnight (Afterpay, 2019). Klarna has three options to choose from
(Klarna, 2019), and Laybuy has implemented weekly payments equally split over a 6
week period (Laybuy, 2019). Paypal allows users to pay in monthly installments over
a period of 24 months (Paypal, 2019)

3.2 Afterpay’s Position in Competitive Landscape

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The obvious conclusion is that Paypal is Afterpay’s strongest competitor, followed by
Laybuy, then Klarna (refer to table 2). Afterpay is similar to Klarna in terms of its
business model, as both provides relatively short installment periods, and is
transparent with their penalty-fee policy. Paypal has the most variety of features,
which is why it is able to capture a larger market share than Afterpay, which only
provides the BNPL digital service. According to Afterpaytouch (2019a), there were
over 200,000 consumers in first 15 weeks after the UK launch, which was actually
higher than when Afterpay launched in the US (Afterpaytouch, 2019a). Additionally,
the purchase frequency of Afterpay consumers increases over time, which shows high
brand loyalty.

4.0 Afterpay’s Resources

The concept that will be utilised in this section would be the Resource Based View
(RBV) by David-West, Iheanachor, & Kelikume (2018). This journal article
demonstrates that in order for a firm to gain competitive advantage, it must possess
resources that are heterogeneity and immobility, and have attributes that are valuable,
rare, imitability, and organisation of resources (VRIO) to gain leverage over its
competition (refer to appendix 1).

4.1 The Resource Based View

4.1.1 Tangible Resources

4.1.1.1 Operating locations
Afterpay have several offices worldwide, in Australia, Singapore, Croatia
(Afterpaytouch, 2019b). Afterpay does not have a great deal of physical offices, as the
service is conducted digitally and customers can easily contact the help centre through
the website and email.

4.1.1.2 Finance
Afterpay was able to secure AUD117 million from investors to expand its business
into the UK (Estares, 2018). This financial edge gave Afterpay a large budget to
properly develop their influence in the UK, including acquiring 90% of ClearPay in
exchange for a million of Afterpay shares. Due to this, Afterpay was able to compete

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smoothly with other BNPL players, as they were able to access and work with current
Clearpay service providers, skilled employees, intellectual properly, and many more.
After only 7 weeks of entering the UK, the underlying sales made was AUD5.6
million (Afterpaytouch, 2019a). Not only that, Afterpay’s share prices had increased
by about 20%, from AUD25.85 to AUD31.17 in early September, which potentially
means the financial value of the company will increase alongside it (Walton, 2019).

4.1.2 Intangible Resources

4.1.2.1 Payment Service
Afterpay’s service is not a tangible product, but a retail payment system that is fully
executed over the merchant’s website. Since the BNPL service is relatively new to
fulfil the emerging market demand, it is an innovative option and is not easily adopted
by other firms.

4.1.2.2 Business Strategy

4.1.2.2.1 Partnerships
4.1.2.2.1.1 TouchCorp
Afterpay’s main partner would be Touchcorp, which provided back-end payment
systems to lubricate Afterpay’s services, and proceeded with a merger : Afterpay
Touch Group (Touchcorp Limited, 2017). This deal includes a new ASX-listed
payments and software corporation, valued at $500 million (Australia FinTech, n.d.).

4.1.2.2.1.2 Dovetail
Afterpay partnered with Dovetail to develop their first mobile app for iOS and
Android, which became widely successful after a short period of time (Fuller, 2019).
As Afterpay began to expand internationally, Dovetail broadened their responsibility
and now currently handles their web page design and software which attracts a total of
4.3 million customers every month (Dovetail Studios, n.d.)

4.1.2.2.2 Branding
Afterpay decided to adopt the Clearpay brand, to ensure a smooth transition into the
UK and to retain customer loyalty (Afterpay Touch Group Limited, 2019a). However,
Afterpay did modify Clearpay’s business model: example includes Afterpay’s arrows

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on the brand logo, as well as adopted the same service and operating platforms similar
to other Afterpay markets.

4.2 VRIO Framework Analysis

The 4 priority resources mentioned above achieves the VRIO evaluation. Financial
resources, product services and business strategies are not only valuable and hard to
imitate, but when used appropriately it provides a powerful competitive advantage
(refer to table 3).

5.0 Afterpay’s SWOT analysis

This section will be guided using Gurel & Tat’s (2017) research, as he shows how the
analysis is crucial in the strategic management process and will assist in building
competitive strategies (refer to table 4).

5.1 Internal Analysis

5.1.1 Strengths
Afterpay has had excellent success in the UK (Afterpaytouch, 2019a), retains strong
partnerships with other corporations, and works with distinguished retail brands,
(Soodan, 2019). Additionally, Afterpay strives to produce new innovative services
for their customers. For example, Afterpay is introducing Variable Payment Upfront
(VPUF), which will give an option to customers to pay extra upfront in order to ‘to
avoid a decline for limits’ (Clarkson-Ledward, 2019). Afterpay also scored above 80
for the Net Promoter Score survey, which reflects exceptional customer satisfaction
(Afterpaytouch, 2019a).

5.1.2 Weaknesses
Afterpay specialises only in BNPL, which means that its business offerings are
limited to the current business model. Afterpay only has one installment period
option, unlike its competitors like Klarna.

5.2 External Analysis

5.2.1 Opportunities

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Afterpay in the UK can expand their customer base due to the rising e-commerce
trend. Presently, e-commerce takes up 19.2% of retail sales, and is expected to grow
to 53% by 2028 (Lim & Matthews, 2019) (refer to figure 3). The UK currently has a
low inflation rate of 1.7%, which means that consumers have more purchasing power
(Office for Natural Statistics, 2019)and credit is at a lower interest rate for Afterpay
customers.

5.2.2. Threats
There is strong competition in the UK market for BNPL services, as the e-commerce
trend started before Afterpay launched in UK. There is the existing threat of new
entrants, as the UK tech sector is developing 2.6 times faster than the rest of the
economy (Ismail, 2018). The success of Afterpay’s service is dependent on the
economy. If the UK economy was going through a recession, Afterpay’s commission
from retailers would fall, as the customers would simply be cutting back on their
expenses.

5.3 Location Decision

By gathering organic strengths of Afterpay, it can overcome the weakness and threats
of the market by turn them into creative strengths. All-in-all, the strengths heavily
outweigh the weaknesses, thus the expansion of Afterpay into the UK was a well-
constructed idea which was executed with ease and perfection.

6.0 Internationalisation of Afterpay

Afterpay first launched in Australia in 2014, and subsequently expanded to New
Zealand, US, and the UK in 2019. According to Stranberg (2018), a firm qualifies as
a Born Global if the firm has global market potential, high technology product
offerings, and has internationalised within 3 years of operations. This journal article
has demonstrated that Afterpay’s business operations are identical to those of a born
global firm.

6.1 Afterpay’s Internationalisation Process: A Born Global Firm

The Internalisation Process for Afterpay will be based heavily on the Phase Model
proposed by Gabrielsson, Kirpalania, Dimitratos, Solbergf, & Zucchella (2008).

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6.1.1 Phase 1: The Introductory Phase
At its initial period, Afterpay did not have large budgets, thus its principal resources
were the founders and their experience in the international market and industry-
specific knowledge (Gabrielsson et al., 2008). Both co-founders had background
experience in e-commerce and joined forces to create Afterpay (Kaulfin, 2018). In
2016, Afterpay went public, and raised USD25 million in investments to take the
business over international waters.

6.1.2 Phase 2: Growth and Resource Accumulation

Afterpay reflects this phase by acquiring Clearpay in the UK, and absorb all the
information retained by this company (Kruger, 2019). According to Gabrielsson et
al. (2008), the essence of this stage is the capability of the firm to learn from its
partner and become aware of the customers behaviours, preferences, and expectations.
This will determine the success or failure of Afterpay, and since the business has been
growing without hesitation, it proves that Afterpay has the resources to retain
customers and retailers.

6.1.3 Phase 3: Break Out and Required Strategies

This phase discusses how the firm should break out of the current partnership after
accumulating experience, and continue to plan a global market positioning
(Gabrielsson et al., 2008). Afterpay acquired 90% of Clearpay’s shares, and has the
option to bring in the rest of it in the next 5 years (Afterpaytouch, 2018). The
substantial growth and high potential on return on investments demonstrates a strong
possibility that Afterpay will acquire the rest of the shares and gain complete control.

7.0 Recommendations

7.1 Notify customers 2 days before collecting the £6 late fee

Afterpay collects late fee payments if an automatic payment does not go through in
time (as mentioned in the competitive analysis). If a due payment has failed, Afterpay
contacts the respective customer by email and gives them until midnight (the same
day) to make the fortnightly payment. Whilst this sets an efficient precedent for the

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customer to make timely payments in the future, many finds this short reminder
period to be unreasonable. In this case, a 2-day warning period should be
implemented to ensure genuine customers do not face this unnecessary charge.

7.2 Implement suggestions by the Senate Economics References Committee

In February 2019, the senate committee has raised the need for additional regulations
outside the National Credit Code, as there are progressively more people getting into
debt due to the BNPL service (Barett, 2019). One of the main areas that the
committee looks to develop and strengthen the current regulatory framework
(Afterpay Touch Group Limited, 2019b). As a new customer proceeds with
Afterpay as the chosen payment on an e-commerce site, the webpage could highlight
the crucial sections of their T&C to bring more attention to the company's service
and expectations of the installment period. According to Emmerton (2019), Afterpay
does not actually refer to a user’s credit history, and this could be devastating for the
customer. As some users have limited experience with budgeting and managing credit,
a credit check is necessary so Afterpay is in control of who uses their services, and if
they should be using it. By having a comprehensive check, it enables Afterpay to
fulfill the committee’s demands by being more ethical, instead of using this
opportunity to scrape profits out of others mishaps.

8.0 Conclusion
In the first section, the report discussed the PEST analysis of the UK and why
Afterpay expanding in the country was an excellent decision. Even though there is a
high possibility of BREXIT, it is highly impossible that the UK will exit without
striking a deal with the EU. The competitive landscape showed who Afterpay is
grappling with, and the Resource Based View listed several resources that is vital to
Afterpay’s operations in the UK. The SWOT analysis illustrated the 4 elements of
Afterpay, which is crucial to develop business strategies. For the internationalisation
process, Afterpay is a Born Global Firm which expands internationally swiftly
compared to other companies. The recommendations were heavily based on the
Senate Economics References Committee’s report, and three practical improvements
have been composed in that section. Afterpay has been widely successful and it
continues to invest in research and development to expand market share and brand
awareness.. However, the limitation of this report would be the lack of BNPL peer

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review journals or professional research papers available on online databases to
reference. The conclusion to this report would be that Afterpay has spent countless
time and effort into meticulously mapping our their international expansion to the
UK, ensuring all aspects are covered.

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10.0 Appendix

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Appendix 1: Resource-based View Model
Source: Jurevicius (2013).

Figure 1: UK E-commerce sales, 2008 to 2015 (excluding micro-enterprises)

Source: UNIDO (2017)

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Figure 2: The world’s 10 biggest economies
Source: Harari (2017)

Figure 3: Online expected to account for 50% of retail spending within 10 years
Source: Lim & Matthews (2019)

Table 1: Online Retail Sales and Growth Rates 2016 and 2017
Source: Centre for Retail Research (2017)

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Table 2: Competitive analysis table

Attributes Afterpay Paypal Klarna Laybuy

Market 14.33% 40% 5.03% 7.44%

share

Service - BNPL - BNPL & other - BNPL - BNPL

provided - Mobile Apps features - Mobile Apps - Mobile Apps
- Available in - Mobile Apps - Available in - Available in
selected physical - Available in selected physical selected physical
stores selected physical stores stores
stores

Penalty fee £10 £12 18.9% £6

Installment 4 installments, Monthly - Full amount in 6 installments,

period every fortnight installments 30 days over 6 weeks
over 2 years - 3 installments,
over 3 months
- Monthly
installments over
6 to 36 months

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Table 3: Resource Based View model of Afterpay

Resources Resource Based View (RBV)

Heterogeneity Immobility VRIO Competitive

Advantage

Value Yes
Location Yes Yes Rare No Yes
Imitable Yes
Organised Yes
Tangible
Value Yes
Finance Yes Yes Rare Yes Yes
Imitable No
Organised Yes

Value Yes
Payment Yes Yes Rare Yes Yes
Service Imitable No
Organised Yes
Intangible
Value Yes
Business Yes Yes Rare Yes Yes
Strategy Imitable No
Organised Yes

Table 4 : Afterpay SWOT analysis

Strengths Weaknesses

1. Great success in the UK 1. Limited business offerings

 200k users in 15 weeks  Specific to current service only
 Difficult to expand product services
2. Reliable and strong partnerships
 TouchCorp 2. Only one installment period option

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 Dovetail  4 equal payments every 2 weeks
 Competitors have more than 1 payment
3. Works together with famous retail brands option
 Kylie & Kim  Limited option for customer
 Forever 21
 Urban Outfitters

4. Developing new innovation and services

 Variable Payment Upfront (VPUF)

5. Superb customer service

 >80 Net Promoter Score
 Customer satisfaction

Opportunities Threats

1. Rising e-commerce trend 1. Highly competitive market

 Forecast : 53% of all retail business by  Competitors = Paypal, Klarna, Laybuy
2028  Afterpay entered UK market late
2. Low inflation rate (1.7%)  No first-mover advantage
 Higher consumer purchasing power
 Credit is at lower interest rate 2. New entrants
 UK’s developing tech sector attracts
start-ups

3. Service is dependant on economy

 Bad economy = customers have low
purchasing power = Afterpay gets less
commission from merchants & retailers

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