Square shortcuts into BNPL market via Afterpay

Square Afterpay Shortcut

The acquisition of Afterpay by US payments company Square Inc is being measured as the largest transaction of its type in Australia, delivering to its Aussie founders a multi-billion-dollar windfall. But for Square, the acquisition represents a shortcut.

That shortcut is into the forecast exponential year-on-year growth in the buy now pay later (BNPL) market.

According to the investor briefing provided by both companies, Square’s move gives it an immediate and solid presence in the BNPL space, which analysts are forecasting will grow by more than 10 per cent year-on-year through to 2024.

The investor presentation pointed to what Square saw as the benefits of the transaction, with Afterpay regarded as being only at the beginning of its growth journey, with less than 2 per cent penetration of what represents a potential $1 trillion market.

What is more, Square sees Afterpay being integrated into its existing Apps – Seller and Cash – something which will generate a circuit involving both sales and repayments.

However, the bottom line for Afterpay shareholders is that the transaction is valued at $39 billion and will see them receiving a fixed exchange ratio of 0.375 shares of Square Class A common stock for each Afterpay ordinary share.

Square co-founder and chief executive Jack Dorsey acknowledged in the company’s acquisition announcement that the transaction would accelerate his company’s move into the BNPL space.

He said Square plans to integrate Afterpay into its existing Seller and Cash App business units “enabling even the smallest merchants to offer BNPL at checkout, while giving Afterpay consumers the ability to manage their instalment payments directly in Cash App.

The transaction is subject to regulatory approvals and is due for completion in the first half of next year.