Square, the credit card processing company run by Twitter founder Jack Dorsey, has announced plans to acquire Australian buy-now-pay-later (BNPL) outfit Afterpay for $29 billion.
Afterpay offers shoppers the chance to acquire goods and services with four fortnightly payments. Merchants pay a commission for each Afterpay sale, often at higher rates than those charged by credit card companies. But consumers can use Afterpay free of charge if they pay on time. Even if punters miss a payment, the initial $10 late fee can be less than credit card interest on the same purchase.
Also known as Clearpay in Europe, Afterpay is an Australian company and launched in 2015. A trading update [PDF] issued today reports it has 16.2 million active customers, 98,200 merchant members, revenue of A$925 million (US$679M) and facilitated $21.1 billion of sales in FY 2021.
Square, which offers credit card processing facilities for merchants without the need to sign up with a bank, says it will use the acquisition to offer merchants more payment options.
"Square and Afterpay have a shared purpose. We built our business to make the financial system more fair, accessible, and inclusive, and Afterpay has built a trusted brand aligned with those principles," said Jack Dorsey, co-founder and CEO of Square, in a canned statement .
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While Afterpay has enjoyed extraordinary growth, it has challenges.
One is that its BNPL product has been widely imitated. PayPal, for example, rushed to create its own "Pay in 4" offering. A rival named "Klarna" has attracted investment from China's Alibaba Group. Chinese web giants Baidu and Tencent have added BNPL features to their e-commerce offerings. Banks and credit card companies have also started to flex their muscles to head off the threat BNPL poses to their rich streams of commission revenue and interest payments.
Another challenge is regulatory. BNPL doesn't meet conventional definitions of consumer debt, which means people in financial stress can find it easy to access and borrow beyond their means. Regulators around the world are alive to the risks that situation poses, and several have started to consider how to ensure BNPL does not evade consumer credit laws.
Square's statement outlines plans to integrate Afterpay into its existing Seller and Cash App business units, to enable even the smallest of merchants to offer BNPL at checkout, give Afterpay consumers the ability to manage their instalment payments directly in Cash App, and give Cash App customers the ability to discover merchants and BNPL offers directly within the app."
Cash App is a peer-to-peer payment tool with over 70 million users, so Afterpay's reach will expand markedly once the deal is done.
The transaction is expected to be conducted in Square stock and to conclude in the first quarter of calendar year 2022. ®