When Molnar met Eisen: The story of Afterpay

Journalists Jonathan Shapiro and James Eyers’ new book about Afterpay covers how co-founders Nick Molnar and Anthony Eisen built one of Australia’s most iconic startups of the 21st century.

Buy now, pay later: The extraordinary story of Afterpay, has just been released, coinciding with Afterpay’s announcement that it will be acquired by Square, the payments giant headed up by Twitter founder Jack Dorsey, in a deal worth US$29 billion ($39 billion).

In this exclusive extract from the book, the authors tell the story of how Eisen met Molnar as a young entrepreneur in his late-teens and started showing him the ropes.

Molnar’s first pitch to Eisen was definitely not the same calibre as Afterpay, and it’s a nice reminder that even the most successful entrepreneurs started somewhere.

Buy now, pay later by Jonathan Shapiro and James Eyers. Source: supplied.

Lay-by

Every year on the second weekend of August, 80,000 runners make their way along New South Head Road through Rose Bay. The 14-kilometre route of the City2Surf then takes them up ‘Heartbreak Hill’, towards the end of the peninsula, before turning towards Bondi Beach. The runners pass the Rose Bay Marina and then several roads on their right. These streets run perpendicular to the harbour promenade, and converge 700 metres up Bellevue Hill. And that is where Anthony Eisen and Nick Molnar met in 2010.

Eisen, at the time, was in the eye of the storm at Guinness Peat. He was managing its investments, which were spread across the globe, and was keeping odd hours. In the dead of night he noticed the light on in the large window in a house across the street. Then in the morning he noticed a boy in his late teens loading parcels into a car. Eisen started to think the neighbours might be drug dealers — they were definitely dealing in something. Some mornings he’d inadvertently tailed the car into which the parcels had been loaded as it made its way to the post office at Bellevue Hill.

One day Eisen met the father of the house, Ron Molnar, as both took out their bins for the weekly pick-up. The two would chat as Ron took his labrador out for a walk while Eisen was tinkering with his boat in the driveway. Eisen’s curiosity soon got the better of him and he asked what sort of operation Molnar’s son was running. Ron told Anthony that Nick, his digital native son, had mastered the art of selling stuff on eBay, and was applying his talents to the 30-year-old family jewellery business.

In time, Anthony introduced himself to Nick and they got on well. The common interest was business, and Eisen would ask him how sales were tracking. Eisen was impressed enough to give the young Molnar an internship at the shrinking operation he was managing at Guinness Peat.

Molnar showed up for work at the Gateway Building, the glass skyscraper at Circular Quay directly in between the harbour city’s world-famous landmarks, the Sydney Harbour Bridge and the Opera House. Molnar was on his L-plates: Eisen would ask him to build him a financial model, but would then have to redo it. He’d ask Molnar to write a reference letter — but would rewrite it. Molnar had found a role model. ‘This is a person I want to become,’ he thought to himself as he observed the highly articulate Eisen in action.

Eisen had patience, though, and enough faith in Molnar’s talents to vouch for the young man as he sought a career in investment banking. Molnar didn’t make the cut at Lazard, where Eisen’s old boss, John Wylie, worked after the US investment bank bought out the boutique firm he founded with Mark Carnegie. Wylie had sent Molnar to see Carnegie, who had held a position for him for a year on the proviso he build his confidence as an entrepreneur and build up his online jewellery business.

Carnegie’s pep talk had inspired Molnar. That was the motivation for his cheeky but successful attempt to bring Ice Online to Australia. The financier had also persuaded Molnar to shift from selling high-end jewellery to cheaper mass-market products, along the lines of the Ice Online model. Molnar had studied Sam Gniwisch’s strategy after that meeting in Las Vegas. Ice in the United States was selling everyday jewellery that retailed for between $50 and $500. As a result of these tips, sales at Ice Online Australia had increased from $2000 a day to $10,000 a day.

In May 2012, Molnar began work at Carnegie’s venture fund, where he spent the following twelve months. By night he was still trying to figure out ways to boost sales, as his younger brother, Simon, and his mother, Michele, spent more time on the Ice Online operation. ‘We realised buying jewellery online was not like buying a dress,’ Michele Molnar told The Sydney Morning Herald. ‘People were getting to the checkout and not confident to complete the transaction. We used to sit around the dinner table and work out how to make the transaction easy.’

Molnar thought some form of credit might be the answer. The Ice parent company had an instalment product that accounted for 50 per cent of sales. Surely a similar offering in Australia would boost sales? In Europe, too, a ‘try before you buy’ service had been established by Swedish company Klarna, which allowed customers to receive a product and try it out before the first payment was due in 30 days. But Molnar was not aware of anyone offering this sort of service in Australia.

Carnegie had stirred Molnar’s entrepreneurial spirit — but perhaps a little too much. He was increasingly spending his time on coming up with ideas to enhance his family’s online jewellery business.

Looking at data from Ice Online, Molnar was puzzled by low conversion rates: only one out of every 100 customers that came to the website would actually make a purchase. He knew instinctively that members of the millennial generation—those born between 1981 and 1996 — were not keen on using credit cards: growing up in the shadows of the global financial crisis, they had witnessed how damaging excessive debt could be. The Reserve Bank of Australia had found in 2013 that people under the age of 30 were making 80% of card payments with a debit card, compared to 50% in all other age groups. But without a credit card, buying online could be difficult, as many customers weren’t keen on paying for something in full before it had been received.

During their regular catch-ups, Molnar would pitch ideas to Eisen. A man of structure, Eisen asked Molnar to formally write up business plans for his bright ideas. The first involved renting airspace in shopping centre car parks to retailers, to make announcements in the same way a radio signal can be interrupted by toll-road operators to transmit an important safety message. Eisen didn’t think much of that idea. The second was the ‘try before you buy’ model, which he was prepared to consider.

Eisen and Molnar talked about lay-by, which allowed something to be bought without a credit card using instalment payments. But the technique required all payments to be made before the item was taken home. Eisen recalled its popularity before the arrival of credit cards, and the two discussed its ongoing use. In 2012, almost 10 per cent of Australians had bought something on lay-by but the product appealed to an older demographic. Lay-by was almost unheard of by Molnar’s generation. It typically required a 10 to 20 per cent upfront deposit and a service fee of perhaps $5 or $10, and then customers would pay the remainder over several weeks or even months. But if they stopped making payments, they’d often lose the deposit.

The conversations with Eisen piqued Molnar’s interest. Lay-by wasn’t appealing to the new generation because it didn’t satisfy a desire for instant gratification. The internet offered immediacy. Millennials wouldn’t want to wait until they’d made all their payments to get their goods. So if they were offered an option to get the product right away and to repay for it in instalments, without having to take out an expensive credit card or even be subjected to formal credit assessments, this might help retailers sell more goods.

This is an edited extract from Buy Now, Pay Later by Jonathan Shapiro and James Eyers (Allen & Unwin), available now at Booktopia.