Buy now, pay later (BNPL) services have changed how Australians shop, making it easier to split purchases into smaller repayments. For many customers, the process feels simple and interest-free when payments are made on time. For small businesses, however, every BNPL transaction comes with merchant fees that can significantly reduce the profit left from a sale.
That cost recently gained attention after Australian entrepreneur Kellie Farley, founder of streetwear brand Bae Bands, shared the breakdown of a A$451.70 customer order. According to Farley, the transaction resulted in about A$30.14 in Afterpay fees before other operating expenses were taken into account.
Why Afterpay fees matter for small businesses
Afterpay, one of Australia’s largest buy now, pay later providers, allows customers to spread purchases across four instalments. While the service has become a popular checkout option, businesses—not shoppers—pay merchant fees for every eligible transaction.
Merchant pricing varies depending on the agreement, but businesses generally pay a percentage of each sale together with a fixed transaction fee and applicable GST. On higher-value purchases, these charges become much more noticeable because they increase with the size of the order.
A purchase worth A$451.70 generated approximately A$30.14 in Afterpay merchant fees. Additional business expenses such as shipping, packaging, payment processing, advertising and returns can further reduce the final profit from that sale.
The fee is only part of the overall cost
For many online retailers, Afterpay is only one component of the checkout process. Ecommerce platforms and payment gateways may charge their own transaction fees, meaning businesses can face multiple deductions before receiving the final payout.
Those costs are then added to everyday operating expenses such as inventory, staff wages, warehouse operations, packaging materials, freight, customer support and marketing. Businesses with relatively small profit margins often have less flexibility to absorb these combined expenses than larger retailers.
Why many retailers still offer buy now, pay later
Despite the higher merchant costs, many businesses continue to offer Afterpay because it can encourage customers to complete purchases they may otherwise delay. Retailers frequently report improved conversion rates and higher average order values when flexible payment options are available.
Farley has said the platform accounts for a substantial share of her company’s orders, making it difficult to remove even though the associated fees affect profitability. This reflects a common challenge for smaller retailers: losing the payment option could reduce sales, while keeping it means accepting lower margins on some transactions.
Growing consumer awareness
Farley shared the figures publicly after realising many customers were unaware that businesses pay merchant fees for BNPL transactions. The discussion prompted shoppers to consider how their payment choice affects independent retailers, particularly those operating with limited margins.
According to Afterpay, the service has more than 4.1 million customers in Australia and works with approximately 129,000 merchants. Its widespread adoption means many businesses view BNPL as an important sales channel even while carefully monitoring the associated costs.
Finding the right balance
There is no single answer for every retailer. Businesses selling high-margin products may find the additional fees worthwhile if BNPL attracts more customers. Companies operating with lower margins, however, often need to calculate whether increased sales are enough to offset the extra transaction costs.
Before deciding whether to offer instalment payments, merchants should compare merchant fees, platform charges, expected return rates and average order values. Reviewing those figures regularly can provide a clearer picture of how payment options affect long-term profitability.
Businesses can review current merchant pricing and eligibility directly through the official Afterpay Business website.
For more insights into how ecommerce platforms influence online retail, see our analysis of Shopify’s latest growth and its impact on online businesses.
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