(Image: AAP/Derek Rose)

Few companies have captured Australia’s imagination like Afterpay — a business that didn’t exist five years ago and is today worth almost $7 billion. If it were a screenplay, the story would have it all: young founder has a bold idea while working in his bedroom, becomes a household name in Australia, successfully takes on the world, slips into the crosshairs of regulators, and stirs an international goliath into action. 

To get an understanding of the extraordinary value gain of Afterpay, consider this: two of Australia’s most successful eCommerce businesses, Kogan and Catch of the Day, are worth around $441 million and $230 million respectively. Both started nearly a decade before Afterpay. Prospa, one of Australia’s largest fintechs, is worth $565 million. Even JB Hi-Fi, arguably Australia’s most successful retailer of the last two decades, is worth a relatively paltry $3 billion. That’s less than half of Afterpay’s market value.

Building a brand

Nick Molnar’s story may one day be fodder for a Harvard case study. While he was at school, his parents owned a jewellery business. Nick would help out, and a few years later he taught himself how to sell jewellery on eBay. A few years later, while interning for legendary merchant banker Mark Carnegie, Molnar somehow convinced US jewellery giant Ice to grant him an exclusive licence to sell its product to Australia. 

Then, the first quirk of fate: Molnar’s neighbour, former Guinness Peat and Caliburn exec Anthony Eisen, noticed him working long hours in his home office and the two struck up a friendship of sorts. Later, Molnar would share his idea for what would become Afterpay — which, in really basic terms, allows debit cards to be used as virtual credit cards by providing instalment payments over 60 days.

This was an insightful revelation because most younger millennials don’t have credit cards. Molnar’s idea was also able to sidestep the need for approvals and checks as somehow, it wasn’t (and still isn’t) deemed to be a credit product.

What Molnar and Eisen had though was merely a good idea (and one which was hardly novel, with Swedish based Klarna already a $3 billion business) and, in Molnar, a generational salesperson. Eisen would become executive chairman (effectively a CEO), and Molnar was named CEO (but in reality he was always the head of sales, by far the most critical role in Afterpay’s success). What they didn’t have was a tech platform or a way to facilitate the transactions and build some sort of fraud prevention algorithm.

People and partnerships

To solve this problem, Eisen and Molnar found an ASX-listed business based in Melbourne called Touch Payments. Founded in 2000, Touch had listed on the ASX in 2015 with a valuation of more than $160 million and had been a strong performer. 

In 2016, Molnar and Eisen listed Afterpay on the ASX in a $25 million deal. The problem was, Afterpay remained heavily reliant on Touch to provide its technology (and Touch owned a significant stake in Afterpay in return). Ultimately, as a business, Afterpay was still essentially a giant bet on Molnar’s ability to create enterprise relationships.

Then tragedy struck — Touch’s founder and CEO, Adrian Cleeve, died suddenly in November 2016. Cleeve’s death was devastating for Touch and its share price plummeted. Suddenly Afterpay, a growing darling, was no longer the dependant member of the partnership. In fact, Touch’s stake in Afterpay became more valuable than its entire legacy business.

In 2017, Afterpay and Touch merged, with Touch shareholders owning 35% of the combined group. It was a deal that solidified Afterpay’s future, gaining control of its valuable tech platform for next to nothing.

Around the time of the Afterpay Touch merger, Eisen and Molnar appointed an early investor and non-executive director, David Hancock, to become group head (in other words, he started acting as the CEO). In one sense, it seemed like a strange and unnecessary hire given Eisen himself was executive chair. Hancock’s role was initially to oversee the integration of Touch and Afterpay. 

Bizarrely, a large number of articles have referred to Hancock as a co-founder of Afterpay — it’s difficult to know if these journalists were lazy, or if Hancock himself implied as much (it was most likely the former), but he clearly played as much of a role founding Afterpay as Scott Morrison did leading the Israelites out of Egypt. By the time Hancock showed up, Afterpay had 6000 merchants and 840,000 customers.

The alleged co-founder did however somehow convince Eisen and Molnar to give him a truckload of shares (to add to his existing pile). When he was appointed, Afterpay gifted Hancock an incredible 2 million loan backed shares (at an exercise price of $2.70). He must have been an awfully good salesman to be able to negotiate such a package, which is now worth more than $50 million. 

This is especially curious given his extracurriculars. Hancock started as a broker at NatWest before ending up at CBA. Later he was chairman of Freedom Insurance, which was savaged by the Hayne royal commission. While Hancock was at the helm, Freedom was accused of refusing to cancel unwanted funeral insurance policies it sold to a young man with Down syndrome. Hancock quit as chairman soon after the commission, presumably giving him more time to focus on investing his massive Afterpay windfall.

As for Afterpay, it remains, for the moment, a market darling — albeit a controversial one. While Afterpay was able to navigate a Senate inquiry which could have resulted in its business being covered by the National Credit Act, it was soon entangled in an unfortunately timed Austrac audit with the regulator announcing concerns about Afterpay’s compliance with anti-money laundering laws.

With a huge addressable market (especially in the US and Europe), it’s capable of being another Australian success story along the lines of Atlassian. Or regulators and competition — hello, Visa! — could stop its run.

Either way, there’s plenty more to be written in the Afterpay story.

Adam Schwab is a former corporate lawyer, angel investor and author of Pigs at the Trough: Lessons from Australia’s Decade of Corporate Greed.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey