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Square’s Proposed $29B Afterpay Acquisition Shines a Brighter Spotlight on BNPL

Square plans to purchase buy now, pay later (BNPL) provider Afterpay in an all-stock deal valued at approximately $29 billion. The Melbourne, Australia-based company currently serves more than 16 million consumers and nearly 100,000 merchants worldwide. The transaction is expected to close in Q1 2022, subject to customary closing conditions.

The deal strengthens Square’s offerings to small businesses and could make them more attractive to larger enterprises via its Seller and Cash App ecosystems. Afterpay will gain a stronger foothold in the U.S. market and greater access to in-person transactions, via Square’s customer base of 70 million annual active Cash App end users and millions of sellers.

“Square and Afterpay have a shared purpose,” said Jack Dorsey, Co-founder and CEO of Square 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.”

Payment industry experts see the acquisition as a win for both companies as well as a sign of the growing ubiquity of BNPL. For Square, which began by “making extremely simple tools for small businesses, mostly restaurant and retail, this fits right into their strategy of democratizing how people can pay the long tail of merchants,” said Rick Watson, Founder and CEO of RMW Commerce Consulting in an interview with Retail TouchPoints.

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“BNPL has become as expected online as any other payment method, and Square’s ability to bring this into the store and capture some of that margin is likely to add to their own bottom line,” Watson added. “This also gives them a financing option where they can control the parameters of how much to ‘lend’ and who to lend to. For Afterpay’s part, this gives them entrée into a larger class of merchants that maybe had not used Square previously, and it could give them leverage into a broader enterprise market in the future.”

[Afterpay VP of Retail Alex Fisher discussed the company’s roadmap during a 2020 Retail Remix podcast.]

In a LinkedIn post, Canadian Lenders Association (CLA) President Gary Schwartz sees ripples that reach beyond payment: “BNPL is a white-hot sector designed for a next-gen consumer that is less connected to the corner bank and leery of high monthly credit card fees,” wrote Schwartz. “BNPL slices the cost of the checkout basket into a few bite-size payments spread over a few months.

“The deal is a window into how investors see financial services panning out,” Schwartz added. “Just as we saw disruption within retail, we now see the same slow motion sinking of the banking Titanic. Retailers are banking on the fintech sector and any company that can provide laddered services to retain the merchant, or the consumer, is ultimately set to win.”

Schwartz noted that Afterpay is a founding member of the CLA’s BNPL task force.

The acquisition could generate additional mergers or partnerships in the BNPL space, which already is one of the busiest sectors of the payment ecosystem. A few recent developments include:

  • In February 2021, PayPal added its own Pay in 4 service for U.S. clients via Digital River;
  • In April 2021, Adyen added Afterpay as an option for its merchants in the U.S., UK, Canada, Australia and New Zealand;
  • Retailers including Amazon, CVS, Macy’s and Target added Afterpay as a BNPL option for their customers in June 2021; and
  • Afterpay rival Klarna purchased two social shopping solutions in late July.

A Twitter thread by Michelle Grant of Salesforce explores additional ramifications of the deal.

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