By Natalie DeCoste
Square has announced that it is acquiring Afterpay. The two companies have entered into a Scheme Implementation Deed under which Square has agreed to acquire all of the issued shares in Afterpay through a recommended court-approved Scheme of Arrangement. The all-stock deal is worth roughly $29 billion based on the closing price of Square’s stock at the end of July.
Square, the creation of Twitter founder Jack Dorsey, offers tools that help empower businesses and individuals to participate in the economy. The company includes Cash App, which allows consumers to spend, send, store, and invest money, and TIDAL, a global music and entertainment platform that expands Square’s purpose of economic empowerment to artists.
In June, Cash App reached 40 million monthly active customers. The Cash App business had a gross profit of $546 million during the second quarter, according to the company in an earnings report released ahead of schedule Sunday. That is a 94% increase over the second quarter of 2020.
Afterpay has popularized the “buy now, pay later” model of purchasing. This model allows customers to receive products immediately and pay for their purchases over four interest-free installments.
The service is completely free to use and was offered by nearly 100,000 of the world’s top retailers and has more than 16.2 million customers as of the end of June. Consumers only pay a fee to Afterpay if they miss an automated payment. A missed payment also locks their account until the balance is repaid.
Square was attracted to Afterpay because of a growing wariness toward traditional credit among younger consumers, a group particularly hard hit by the COVID-19 pandemic. In the press release about the acquisition, Square said it aims to enable the companies to better deliver compelling financial products and services that expand access to more consumers and drive incremental revenue for merchants of all sizes.
“Square and Afterpay have a shared purpose. 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. Together, we can better connect our Cash App and Seller ecosystems to deliver even more compelling products and services for merchants and consumers, putting the power back in their hands,” said Jack Dorsey.
Following the deal, Square plans to integrate Afterpay into its existing Seller and Cash App business units. This will allow smaller merchants to give their customers access to the buy now pay later model. The deal will also give Afterpay consumers the ability to manage their installment payments directly in Cash App and give Cash App customers the ability to discover merchants that use Afterpay’s model directly through the app.
“The addition of Afterpay to Cash App will strengthen our growing networks of consumers around the world, while supporting consumers with flexible, responsible payment options. Afterpay will help deepen and reinforce the connections between our Cash App and Seller ecosystems, and accelerate our ability to offer a rich suite of commerce capabilities to Cash App customers,” said Brian Grassadonia, Lead of Square’s Cash App business.
During the pandemic, many consumers were pulled into using Afterpay’s service and model over traditional credit. However, traditional credit is once again on the rise and in consumers’ good graces. Reports from Equifax in April showed that lenders issued more general-purpose credit cards than any other March, going back to at least 2010.