Intro: Do you feel like you were meant to have a kick-ass career as a hair stylist? Like you got into this industry to make big things happen?
Maybe you’re struggling to build a solid base and want some stability. Maybe you know social media is important, but it feels like a waste of time because you aren’t seeing any results. Maybe you’ve already had some amazing success but are craving more. Maybe you’re ready to truly enjoy the freedom and flexibility this industry has to offer.
Cutting and coloring skills will only get you so far, but to build a lifelong career as a wealthy stylist, it takes business skills and a serious marketing strategy. When you’re ready to quit just working in your business and start working on it, join us here where we share real success stories from real stylists.
I’m Britt Seva, social media and marketing strategist just for hair stylists, and this is the Thriving Stylist Podcast.
Britt Seva: What is up and welcome back to the Thriving Stylist Podcast. I’m your host, Britt Seva, and today we’re going to talk about the payment system that is taking the industry by storm, and that is Afterpay.
Some of you, as I say Afterpay, know exactly what I’m talking about. You’ve been offering it in the salon. This feels like old news to you. I tip my hat off. Thank you for sharing your stories and allowing me to do a little market research and really consider this as a payment option. To those of you who have not been using it yet, but are curious about it, this episode’s for you. And for those of you who are like, “What does Britt mean when she says Afterpay?”, this episode is especially for you.
Afterpay is this emerging form of payment. And when I say “emerging”, it’s not brand new. Afterpay was established in 2015. So at the time of this recording, it’s a seven-year-old system yet it’s just now exploding into certainly our market. I’m seeing it a lot more accessible to service-based businesses. I definitely noticed over the last couple of years, as I’ve been checking out online retailers, that I’ve been seeing Afterpay much more frequently now. Almost always, but much more frequently.
It seems like over the last few months in 2022 specifically, we’re seeing a lot of service providers offering Afterpay. I can’t tell you exactly why the explosion has taken place. I don’t know if Afterpay got more funding.
Essentially, they’re a micro loan company, which we’ll get into in a second. I don’t know if they got more funding. I don’t know if they got more traction, so they were able to approve more business types.
With companies like this, usually what happens is there’s a pretty stringent approval process, which there is for Afterpay. We’ll talk about that in a second. There’s an approval process and what Afterpay has to decide is if they want to take a risk on you because they’re essentially fronting money and expecting a payback, right? When you’re starting a business like Afterpay, you have to build up momentum. They had to build up their revenue to get to a place to continue offering these micro loans and so it seems like now they may be approving a wider range of businesses, which is why we’re seeing it enter the service-based industry space now for the first time.
That’s my guess, I could be wrong, but I think that’s a fairly strong assumption.
What exactly is Afterpay and how does it work? Like I said, it’s essentially a micro loan processor. So Afterpay is an app, you can download it from any app store on your smartphone or tablet, and businesses are registered to this system. Once a business is registered, you can choose to pay for goods or services from that vendor using Afterpay rather than using your own credit card, your debit card, or paying cash.
If you as a consumer choose to use Afterpay, what happens is your total cost for whatever it is you’re looking to purchase is broken down into four payments. You need to make one of those payments today. So you pay 25% of the total value on the day that you’re making the purchase and then the remaining 75% is paid out over six weeks. So it is three more payments and every payment occurs every two weeks. Does that make sense? So it’s a total of four payments and it takes six weeks for the entire process to occur because one payment is taken out today. Then in two more weeks, another one, two more weeks, another one, two weeks after that, the fourth and final payment is taken out. It takes what was once one large fee and breaks it down into four smaller chunks payable every two weeks.
Let’s say for example somebody was coming into your salon and it was going to be $400 for them to get a cut and color. Well, maybe they just got a new job and they don’t have the money right this second, but it’s coming. They could pay just a hundred dollars for that cut and color today, and then another 100 would be auto drafted from their account in two weeks, and then another hundred two weeks after that. And then the final hundred would come out six weeks after they came in to see you.
When you say, “…but how does that affect me as the service provider?” You get a lump sum payment shortly after the service is rendered. Now there is a nominal percentage fee that you as the business pay.
The way that Afterpay works—and I’m not going to say what that fee is because I want this podcast to be as timely as possible and I tend to think that fee will change over time. So you as the business are the one who takes a bit of a financial loss when Afterpay happens. The way the system is set up is that the consumer pays no financial penalty. It’s the businesses that pay the financial penalty piece, and that is how Afterpay makes money.
Now, there is one other way that Afterpay makes money and we’re going to talk about that in a second, but essentially the client gets an interest-free micro loan payable over six weeks so long as they’re not late on a payment and they pay everything off in full on the payment schedule that’s defined. You as the business get that lump sum payment very shortly after the services are rendered minus that nominal fee charged by Afterpay. That allows you to accept payments in this form.
If you’re thinking, “Well, I’ll use Afterpay as a way to avoid credit card transactions,” that’s not going to work out for you. There’s still a processing fee that we as the business take on.
If that is of interest to you, the next question might be, “Cool, so how do I apply to get started?” You have to register your business as an Afterpay business and there is a review process. Not just anybody can do it or offer it. So if you’re like, “Hmm, I might want to offer Afterpay to my clients,” what you do is you go to the Afterpay website—you can just Google it and pull that up—and you fill out an application. In that application, it’s going to ask for detailed information about you, your business, your employer identification number. You’ll enter in your social security number. You’ll enter in banking details. You actually link to your bank and they do a financial review of you as the business, not to the consumer, but you as the business because they want to see how financially savvy you are. Do you have money in the bank? Are you somebody with a good trusted track record? Because you’re a part of this micro loan process now if you are going to be accepting Afterpay.
You enter in all of your details as a business, there’s a two-to-three business-day review process, and then they let you know at the end, “yes, you’ve been approved,” “No you’ve been denied.” Then next steps go from there.
Ideally you’re approved and then what happens is you become a part of the Afterpay registry. If a client of yours wants to use Afterpay, they’ll pull out Afterpay on their smartphone, and they’ll be able to process a payment to you using your Afterpay employee ID.
So what about the consumer? How does Afterpay work for them? Well, as a consumer, there is also a review process where you enter in very similar information. Now Afterpay is not like a credit card in the sense that there is no delinquency that gets reported to a credit agency. So if you miss one of those payments that is required of you, they don’t go report you to the credit bureau versus with a credit card, that’s exactly what happens. Then you have what we call a ding on your credit report, right? And then your credit score can go down Afterpay is not actively reporting to credit bureaus.
However, here’s something you should know. There are terms in the fine print that say that they are legally within their rights to do so. So even though publicly on their webpage, they’re like “no credit check, no credit bureau,” why do you think they ask for your social security number? Why do you think they ask for your physical address? Why do you think they’re asking for all this?
Well, because if you read the terms and conditions—which of course nobody does, they just check the box and say, “Hooray I get to get my hair done today.” When you read the terms and conditions, if you start defaulting on payments or if they feel they need to do further research on you, they are within their rights to go to the bureaus, so it’s not totally credit agency free. You should know that the potential is there and they’ve protected themselves in that, but they’re not actively reporting to any credit bureau based on whatever happens.
Now as a consumer, how much credit do they get? Remember you’re taking out a micro loan, it’s important to know that that’s how this system works and the amount of funding that a consumer gets when they open Afterpay varies, right? It’s an application process like anything else. So somebody might get a $500 credit to start. Some people might get a thousand dollars credit to start.
That sounds simple enough. You have a $500 credit. You want to get your hair done for $280. That should be no problem. Here’s where it gets tricky: Afterpay reserves the right to change that allowance at any time. So a client might think, “Amazing. I have a thousand dollars in Afterpay credit that I can use as I want to.” Well, what could happen? And what does happen is sometimes somebody will go to pay for something with Afterpay. It will look in their account as if they have Afterpay funding available to them. But when they go to check out, it will say, “Ooh, sorry. Afterpay cannot approve this transaction.” Why? This is the bummer. Afterpay uses one of our favorite things. What’s our favorite word? Algorithm.
Afterpay uses an algorithm, just like social media does to determine who they’re going to fund, what purchases they’re going to approve, and at what level, how much they’re going to allow to transpire. It is to their discretion to approve and decline essentially on a whim, and they don’t owe you an explanation. They don’t owe you anything.
Here is my fear is that a client might come in to see you. You accept Afterpay. They have an Afterpay account. They go to check out at the end only for Afterpay to say, “Oh, sorry, credit not available any longer,” and now you’re both sitting here staring at each other, like, “Excuse me. I just did a full extension install on you. Your bill is $800 and you have no way to pay me.” That to me is scary.
So now what are you going to do? The client is embarrassed and feeling awkward and you’re like, “This stinks, but hi, I’d like my $800,” and it’s like, okay, are you supposed to then ask them to come back in two weeks and pay? Are you supposed to create a payment plan? This is where it gets a little crunchy.
Because of that tricky policy, if you are going to allow Afterpay, my advice is your policy is that the payment, if using Afterpay, must be rendered before the service takes place. I think it protects you. I think it protects them. I think it protects everybody so that if they’re sitting there and it’s like, “Sorry, we can’t approve you for the 800. We can approve you for 400,” maybe the conversation becomes, “Well, then I can’t do your install today. I can do a root touch-up for you, but the funding isn’t there.”
I think that it’s still awkward, but it eliminates some of the awkwardness. So I just wanted to touch on that the way that they approve funding is tricky. They can pull the rug out from a consumer at any time on a whim and usually the consumer does not know that a transaction is not going to be approved until the transaction is being run, so both you and the consumer can end up in a bind if you don’t run that transaction before the service transpires. So if you are going to accept Afterpay as a service provider, that would be my suggestion.
Let’s talk about how Afterpay limits are increased. When a consumer spends and repays Afterpay on time, on schedule, the amount that they’re able to borrow as a micro loan increases just like a credit limit does. So the more you’re responsible with the tool, with the app, the higher your limit will be, the less you’ll be declined.
Now I tend to think, although they haven’t disclosed this and they don’t have to, I tend to think that the history of the provider also plays into that. So if you’re first using Afterpay and you have lots of hiccups, it’s likely because Afterpay is trying to trust you as a small business owner and trying to trust those coming into work with you. So be patient, give it some time, nurture the process because it might not be smooth sailing at the beginning, but there are limitations and tricks.
When it comes to fees and charges, if you look at the app, everything looks very like rainbows and sunshine, and it’s like four interest-free payments. This is going to be amazing. And that’s all true so long as payments are made on time. Now, what happens if a client comes in and again, it was a $400 service and it is required 25% must be paid immediately. So if I’m using Afterpay and I’m coming in to see you and the service is $400 and I’m using Afterpay, a hundred dollars is going to come out of my checking account as soon as I run the Afterpay transaction. That hundred dollars is like good faith money. It immediately goes to Afterpay and then the assumption is I will make the next a hundred dollars payment in two weeks.
Let’s say Afterpay goes to withdraw that next a hundred dollars for my checking account and the money’s not there. They can’t pull it. Then there’s a late payment fee. At the time of this recording, it’s $10, but that could change at any given time. And if a week goes by and it’s still not paid, well, then there’s another fee that gets tacked onto that. Now they’ve received not one but two fees. So if it was a hundred dollars they were trying to pull, and now this person’s seen maybe 15, 17, $20 in, well, now they’re paying like 20% interest.
It’s not that it’s interest free. It’s that if you pay on time, there is no repayment penalty, but there could be if somebody defaults or is late. Now, here’s the rub with that is often the person who is using something like Afterpay is maybe somebody where their pay is a little unpredictable, where they’ve got a lot going on, or they’re between jobs, or things are transitioning. So rather than just having the money up front, they have to nurture a little bit and, and move some things around because they believe they’ll have the hundred dollars in two weeks. They just don’t have it today, right? That’s going to be the person who’s using this system. If they don’t have it, by using Afterpay, they could be creating additional stress and pressure on themselves.
Now we could say, “Well, that’s on them. I got my money,” and I get it, but you should just know that your clients could get into a bind with this. I love to think that everybody’s financially responsible, but they’re not. I remember being a young teenager, 20-something trying to manage my money, and I was so far from responsible. I mean, irresponsible was the name of the game. And so they could get into some trouble with it. They can also get penalty fees of up to 25% of total amount of the micro loan. That’s a lot, I mean, 25% potential interest is a lot, and it is capped at that, but I don’t want you to just think “Sweet, this is like an interest-free way for my clients to pay and it’s just an awesome option.” It is a good option and it’s certainly an alternative to credit, which has a lot of complications and challenges, but it’s not flawless and it’s not seamless, so I just kind of wanted to share everything to know about the system.
Now, there is something that Afterpays done that I think is pretty cool. I don’t know if this will stick around forever, but I think it was a really great, good faith move and I appreciate it. If you know if you’re a consumer—and you might even want to tell your clients this—if you’ve got a payment coming up on the 10th of the month and you’re like, “Ugh, I really thought I’d have the money and I just don’t, but if I had until the 13th, I’m certain I could have it,” Afterpay does allow you to reschedule payments by up to five days, but you have to do it ahead of time. So they’d have to log in on, let’s say the eighth, and somehow through the back end of the system—I’ve never done this, but I’ve read this is their policy—through the back end of their system, request a payment reschedule. You let them know, “Listen, I can’t make the payment on the 10th, but I’ll make it by the 15th,” they’ll go ahead and withdraw that later and you won’t have to incur those late fees.
So communication’s important and that’s essentially what Afterpay is trying to say. Like communicate with us, let us know if there’s something that’s not working out. We’re here to partner with you. But if you’re just out of sight out of mind, they can’t help you with that. You’re going to incur those late fees, and ultimately you could have your Afterpay account shut down, which is always the risk.
Now, as far as what happens if somebody wants a refund, if somebody paid through Afterpay and they come back to you asking for a refund, you have to process that and you have to work that out with Afterpay, Afterpay doesn’t change their withdrawals. They don’t change their structure. They wait for you as the business to approve or decline the refund versus a credit card company.
If you’ve ever had somebody dispute a charge on credit, it’s between you and the creditor, right? American Express will send you an email or call you, or they’ll just take their money back from your bank account, whatever the process is, depending on the card. And you’re like, “Wait, what the heck just happened?” Because credit cards are designed to protect the consumer, not the small business actually, versus Afterpay is like if you want a refund, that’s between you and the business. We’re not getting in the mix on that.
So they have a really different approach, so if somebody does come back to you asking for a refund and they did pay with Afterpay, you’re going to have to negotiate that with Afterpay, you’re going to have to work out all those terms. It is a little bit of extra work on your part to make that seamlessly happen on the back end.
Again, what do I think about Afterpay? I think it’s interesting. I think it’s an emerging form of payment. I think that it’s something that we’ll learn a lot more about as time goes on. I think that it’s innovative and I think that it’s nice to have something different than credit. I don’t think it’s flawless. I don’t know that anything is, and I hope that this podcast has just given you some awareness as far as what the system’s all about, if it’s a good thing for you, and what it could do for your business and your clientele.
And as I always like to say, so much love, happy business building, and I’ll see you on the next one.
