Square to buy Afterpay in a mega fintech deal — buy now pay later industry heats up

On Aug 1, Square (NYSE:SQ) announced plans to acquire “Buy Now Pay Later (BNPL)” firm, AfterPay (ASX:APT) for $29b in an all-stock deal — sending Square’s stock up 10%.

What’s the big deal? The BNPL industry is one of the hottest areas in fintech — disrupting the massive $3.6t credit card industry.

• Younger consumers are steadily preferring BNPL over credit cards — especially in Australia, where shoppers used BNPL for 10% of all e-commerce purchases in 2020.

Square is known for its all-in-one cash app which provides banking, investing and spending. And now, this acquisition brings Square towards the front of the BNPL industry (second to privately-traded Klarna).

Afterpay complements Square’s existing products — making it an even bigger threat to existing banks.

The signal: While BNPL is still a fraction of the credit card industry, the price tag on Afterpay shows large fintech companies seeing the potential growth in the emerging industry.

Square entered the BNPL market by buying a competitor — others took a different route:

• In recent weeks, Apple announced plans to launch a BNPL product in partnership with Goldman Sachs.
• Visa and PayPal launched their own BNPL options.
• Shopify placed its bets on the BNPL industry by investing in Affirm — leading to a big partnership by offering Affirm’s payment method throughout Shopify stores.

The other guy: The acquisition also benefited competitor Affirm (NASDAQ:AFRM), which jumped 15% on the news.

• Once the deal closes, Affirm (NASDAQ:AFRM) becomes the only public BNPL-focused company left on the stock market.

Square’s willingness to pay such a high price for Afterpay inadvertently increased Affirm’s attractiveness, but the competition is only starting.