Square grows in Credit Payments by acquiring Afterpay

By Ismail Berbache, on 31/08/21

Twitter founder Jack Dorsey’s company is buying the FinTech Afterpay for $29 billion.

Payment in installments is booming, and there is a huge appetite for it. The American company Square, founded by Twitter’s CEO Jack Dorsey and specializing in digital payments, has just put $29 billion on the table to acquire Australian Afterpay, one of the world leaders in fractional payments. This is the largest transaction ever in Australia. It will be entirely done by share exchange and upon completion, in the first quarter of 2022, Afterpay shareholders will own 18.5% of Square.

An innovative concept

Afterpay, whose motto is “buy now, pay later”, offers an application that allows individuals to spread out the payment of small purchases, often without charges. However, those who fail to pay on time are subject to penalties. The majority of Afterpay’s revenue yet comes from charging merchants transaction costs – around 4% of the sale price. In exchange, they are paid immediately and are not exposed to customer default.

Founded in 2014 in Australia by billionaires Anthony Eisen and Nick Molnar, Afterpay has been accelerating its development over the past two years. The start-up counts more than 16.2 million customers in Australia, but also the United States, Canada, UK, France, Spain and Italy. In 2018, it received a boost thanks to a tweet from Kim Kardashian which invited her millions of followers to use Afterpay to buy KKW beauty products. The platform is now used by over 100,000 merchants around the world.

Opportunity knocks

It’s no surprise that Square is expanding into fractional payments. The market has been growing exponentially for several years, tripling in 2020 during the lockdown periods and the online shopping boom. “This type of product appeals to all types of populations: not only so-called financially fragile customers, but also wealthy customers, who can respond instantly to a purchase need,” emphasizes a study by Exton consulting. Young people are also very fond of them.

In this context, companies specializing in payment in installments have also seen their valuations explode. This is the case of the Swedish company Klarna, whose total shares value rose in one year from 10 to 45 billion dollars in June 2021.

Terrific visionary

In 2010, Jack Dorsey created Square, which has since continued to diversify. The Californian company operates the mobile payment application Cash App, which has 70 million users and plans to integrate Afterpay’s services into its existing offerings. The Californian giant, which has a market capitalization of $107 billion, appears to be one of the main payment start-ups capable of challenging the supremacy of banks.

This is not surprising, some say, coming from Jack Dorsey, the 44-year-old who launched Twitter in 2006. Two years later, however, he was removed from the management of the social network, before taking over the reins in 2015. Alternately described as a “brilliant visionary” or a “billionaire ascetic” (he only eats once a day), this jack-of-all-trades has since managed to turn it into a highly profitable company.

Ismail Berbache

University College London – FinTech Writer

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