woman paying at cafe

Square Acquires Afterpay

Square’s Strategy

Square Inc. (SQ) is acquiring the “buy now, pay later” platform Afterpay (AFTPY) in a $29 billion all-stock deal. A number of fintech companies have been finding ways to scale and diversify in order to compete with large legacy banks.

Square is best known for its white card reader which attaches to tablets and phones, but it also offers a payment service called Cash App. Square sees Afterpay as a useful way to link its seller ecosystems with Cash App. Once the deal is complete, customers will be able to make Afterpay payments through Cash App. Shoppers will also be able to search for stores offering deferred payments through the app.

Deferred Payments Gain Popularity

Services like Afterpay gained popularity during the pandemic, especially among younger shoppers. Afterpay lets consumers make purchases in four interest-free installments. Consumers only pay a fee for Afterpay’s services if they miss a payment. The bulk of Afterpay’s revenue comes from fees that merchants pay to the company.

Many younger shoppers have become wary of credit cards in recent years. The pandemic, which caused financial strain for many, accelerated this trend. Shopping through “buy now, pay later” services gives shoppers a way to purchase high-priced items without credit cards.

Demand for credit cards has been climbing in recent months as the economy reopens, but analysts believe that deferred payments systems will still be popular for years to come.

Competition Heats Up

At the same time as it shared news of the Afterpay acquisition, Square also reported a Q2 net income of $204 million. For context, the company posted losses of $11.5 million during the same quarter a year ago. Square’s recorded revenue was $4.68 billion during this year’s second quarter, compared to $1.92 billion a year ago.

Afterpay has also seen significant growth in recent years. In Australia and New Zealand, more than one in seven adults have an account with the service. It has recently inked deals with a number of retailers in the US including Free People and Anthropologie.

Large banks including JPMorgan Chase (JPM) and Citigroup (C) as well as tech giants like Apple (AAPL) are working to get a piece of the deferred payments market. It will be interesting to see how Afterpay navigates the changing market as it becomes a part of Square.

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ABOUT Meg Richardson Meg Richardson is a writer specializing in markets, technology, and personal finance. She loves breaking down seemingly complex ideas and making them readable and interesting for everyone. She holds an MFA in writing from Columbia University. When she is not writing about finance, she enjoys running in Central Park and drawing cartoons.

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