What's the strategy behind Square's largest-ever acquisition?

In a sign of the massive shifts in retail and online payments, Square announced on Aug 1 that it would acquire Australian fintech Afterpay for $29 billion, its largest acquisition to date. Afterpay, a Buy Now Pay Later (BNPL) service, allows customers to break up a transaction into installments. This fast-growing type of unsecured lending is altering retail and online purchases, consulting firm McKinsey & Company recently reported . Fintechs have taken the lead in the BNPL space, diverting $8 billion to $10 billion away from traditional banks in annual revenues, McKinsey noted. [caption id="attachment_219317" align="alignright" width="300"] Photographer: Brent Lewin/Bloomberg Mercury[/caption] The acquisition of Afterpay will “be like adding rocket fuel to the flame,” and will drive up consumer and merchant use of BNPL in the U.S., said Alyson Clarke, a principal analyst who specializes in financial services with research firm Forrester, in an email to Bank Automation News . “It’s one more step towards Square’s desire to dominate small business banking and payments,” especially on the heels of the July announcement about Square Banking , Clarke said. “The addition of a BNPL offering for consumers will embed additional value and strengthen the merchant ecosystem even further — making it easier for Square to lure merchants away from the traditional banks.” Another sign of BNPL’s surge right now: Indonesian-based BNPL platform Kredivo announced today it will go public in a $2.5 billion merger with a special purpose acquisition company, sponsored by Victory Park Capital. The McKinsey study found that 60% of customers said they would likely use point-of-sale (POS) financing over the next six to 12 months. The BNPL market is projected to grow 33% over the next three years, according to recent data from FIS’ Global Payments Report , making it the fastest-growing sector in fintech through 2024. FIS predicts BNPL will double its ecommerce market share from 2020 to 2024, making BNPL 4% of all ecommerce transactions. That may appear to be a small percentage, but it is the fastest-growing online payment system in both the U.S. and the U.K., FIS added, representing ecommerce market shares from 2% to 5% in the U.S. and from 5% to 10% in the U.K. The big question is how regulators will respond, Forrester’s Clarke said. While regulators in Europe have started to more closely scrutinize BNPL, it remains largely unregulated territory. “Some players only do soft credit checks before lending to customers, and others like Afterpay do no credit checks at all,” Clarke said. “Around the world, regulators have already started to look more closely at this market with the aim of increasing consumer protection.” News of the Afterpay acquisition overshadowed Square’s other announcement this week — its second-quarter earnings results. In a letter to shareholders , the company reported a gross profit of $1.14 billion — up 91% year-over-year — in the second quarter of 2021, with its Cash App generating a gross profit of $546 million and its seller ecosystem generating $585 million. Square posted a net loss of $204 million, up from $39 million in the first quarter. In Q2, the company recognized a $77 million gain on its equity investments and a $45 million bitcoin impairment. Shares of Square [NYSE: SQ] were trading $269.49, down 1.06% from market open as of 4:45 p.m. Tuesday.

What’s the strategy behind Square’s largest-ever acquisition?

The plan to purchase BNPL fintech Afterpay underscores significant changes in payments

Carlyle to invest in Abrigo at $1 billion-plus valuation

Grayscale hires ETF head to convert biggest Bitcoin fund

Related Posts

AI agents need machine-speed money; enter stablecoins

6 banks co-author principles for creating unified agentic commerce infrastructure

PayNearMe acquires Marr Labs, plans AI across payment process

Grayscale hires ETF head to convert biggest Bitcoin fund

EMERGING FINTECH DIRECTORY

FinAi Podcast

SPONSORED

Build an Antifragile Strategy to Outperform the Market

How AI and Product Experts Turn Fuzzy Requirements Into Focused Dev-ready Roadmaps

Is Your Technology Supplier There for You?

Connect

Welcome Back!

Retrieve your password

Continue Reading with FinAi News Premium - Less than $2/Day

What’s the strategy behind Square’s largest-ever acquisition?

The plan to purchase BNPL fintech Afterpay underscores significant changes in payments

Carlyle to invest in Abrigo at $1 billion-plus valuation

Grayscale hires ETF head to convert biggest Bitcoin fund

Related Posts

FinAi Podcast

Connect

Welcome Back!

Retrieve your password

Unlock This Article

Continue Reading with FinAi News Premium - Less than $2/Day