In the age of fintech boom, every payment company appears to have a goal to expand to new markets. For some, it means raising funds in new rounds; while for others, it means acquisition or using a different playbook. From Stripe’s acquisition of Nigerian startup Paystack to Flutterwave, another Nigerian payment firm, attaining unicorn status, the uptick has been remarkable. Now Square, a payments company cofounded by Twitter CEO Jack Dorsey, is joining the race.
Square plans to buy Australian fintech company Afterpay as it looks to expand further into the booming installment loan market.
The company announced the $29 billion, all-stock deal on Sunday evening. The price tag marks a roughly 30% premium to Afterpay’s last closing price.
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“Square and Afterpay have a shared purpose,” said Square’s CEO Dorsey in a statement. “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.”
Shares of Afterpay in Australia surged on that news, and closed nearly 19% higher on Monday.
Founded in 2015, Afterpay offers buy-now-pay-later services to millions of its users cut across Australia, US, Canada, UK (where it is called Clearpay) and New Zealand. The company allows customers to access the things they want and need, while still allowing them to maintain financial wellness and control, by splitting payments in four, for both online and in-store purchase.
Square pointed to consumers eschewing traditional credit, especially younger buyers. The San Francisco-based payments company already offers installment loans, which said it has been a “powerful growth tool” for Square’s core seller business. It plans to integrate Afterpay into both its seller and Cash App ecosystems.
Afterpay lets customers pay in four interest-free installments and pay a fee if they miss an automated payment. Its 16 million customers will eventually be able to manage installment payments directly through Cash App. The deal is expected to close in the first quarter of 2022.
Per CNBC, installment loans have been around for decades, and were historically used for big-ticket purchases such as furniture. Online payment players and fintechs have been competing to launch their own version of “pay later” products for online items in the low hundreds of dollars.
Affirm is one of the better-known public companies offering the option to finance items in smaller, monthly payments. PayPal, Klarna, Mastercard and Fiserv, American Express, Citi and J.P. Morgan Chase are all offering similar loan products. Apple is planning to launch installment lending in a partnership with Goldman Sachs, Bloomberg reported last month.
Square also announced its second-quarter results on Sunday, ahead of the previously planned release on Wednesday.
Gross profit increased 91% from a year ago, which marked a record quarterly growth rate for the payments company. Cash App profit was up 94%, while seller jumped 85% from a year ago. Net revenue excluding bitcoin came in at $1.96 billion for the quarter, an 87% rise year over year.
The company’s Venmo competitor, Cash App now has 40 million monthly transacting active customers.
Afterpay derives its revenue from merchants rather than customers. The company believes its pattern of play will encourage a more accessible and sustainable world in which people are rewarded for doing the right thing, thereby powering an economy where everyone wins.