Square + Afterpay = a Financial Juggernaut
In a blockbuster deal that rocks the fintech world, Square announced in early August 2021 that it is acquiring Australian Buy Now, Pay Later (BNPL) giant Afterpay in a $29 billion all-stock deal.
Square's goal as stated in their press release "Square wants to enable even the smallest of merchants to offer BNPL at checkout, give Afterpay consumers the ability to manage their installment payments directly in Cash App, and give Cash App customers the ability to discover merchants and BNPL offer directly within the app." SQ’s CFO added, “The plan is for Square to integrate Afterpay into both its consumer Cash App, and its Seller product for small businesses.”
This acquisition is a major step towards Square’s planned domination of the fintech ecosystem in the US and gradually on a global scale.
What is BNPL & How Big is the Industry?
The Buy-Now-Pay-Later industry was born out of frustration that consumers had with credit cards and the massive interest rates that consumers have had to bear from the hands of the big banks. With BNPL, consumers would have the flexibility to make purchases based on their preferences and terms. Merchants also benefit from BNPL because they can increase conversion rates, attract more customers who would have avoided their products. As a result, they would be able to extract higher merchandise value from consumers. One of the reasons that expensive products such as Peloton have gained popularity over the past year is due to the convenience of BNPL.
The BNPL is a massive industry estimated at over $1 Trillion. Square estimates the global payments opportunity is at $10 Trillion and BNPL is currently at a 2% penetration rate. This is a massive opportunity as more consumers realize the benefits. This BNPL trend has appealed more to Millennials and Gen Z consumers. These young customers no longer make bigger purchases from traditional credit card providers when a BNPL option is easily available.
Afterpay builds connections between Seller and Cash App
With its plan of integrating Afterpay into its Seller (B2B) and Cash App (B2C) product, Square has created a two-sided market that would drive more purchases between merchants and consumers.
With the integration, customers can now manage their loan repayment installments within Cash App. This will further help Cash App drive new customers and increase their engagements amongst existing customers who decide to use Afterpay. This is another lead gen opportunity to increase Square sellers & small business owners' sales and introduce new merchants to their existing Seller ecosystem.
Square’s banking license
Finally, with Square’s recent approval of its banking license, Afterpay’s acquisition can’t come at a better time. With the license, financial operations such as lending will require a much lower cost of capital. Square will be able to leverage the wide scale of Afterpay’s software and utilize the network effects from the products.
As an early investor of Uplift, a Buy-Now-Pay-Later for Travel, we at Good AI are incredibly excited about the acquisition. It is a giant validation of the entire BNPL market. And when offered in a scalable and cost-effective financial platform such as Square’s, BNPL can bring great disruption to the entire payment industry.