Square acquires Australian fintech Afterpay as part of ‘buy now, pay later’ trend

Square plans to buy an Australian fintech company After-payment as it seeks to expand further in the booming installment loan market.

Jack DorseyThe payments company announced the $29 billion all-stock deal on Sunday evening. The price marks a premium of around 30% over Afterpay’s last closing price.

“Square and Afterpay have a common goal,” Square CEO Dorsey said in a statement. “We built our business to make the financial system more fair, accessible and inclusive, and Afterpay has built a trusted brand aligned with these principles.”

Shares of Afterpay in Australia jumped on the news and closed nearly 19% higher on Monday.

Jack Dorsey, CEO of Twitter and co-founder and CEO of Square, speaks during the Bitcoin Convention 2021 cryptocurrency conference at the Mana Convention Center in Miami, Florida on June 4, 2021.

Mark Bello | AFP | Getty Images

Square pointed out that consumers are shying away from traditional credit, especially younger shoppers. The San Francisco-based payments company already offers installment loans, which it said was a “powerful growth tool” for Square’s core selling business. It plans to integrate Afterpay into its Seller and Cash App ecosystems.

In an interview with CNBC’s “Squawk on the Street” on Monday, Square’s chief financial officer Amrita Ahuja said the company sees the acquisition as an opportunity to create a “more powerful e-commerce platform” that soothes growing consumer interest in “transparent shopping opportunities” and providing new ways for merchants to serve their customers.

“We see a real opportunity to empower the next-generation consumer who is looking for different ways and, in this experience, an uninspiring way to expand purchasing potential,” Ahuja said. “What it ends up doing is merchants are paying for the Afterpay experience, but they’re getting higher average order volumes, they’re getting higher conversion, they’re getting higher frequency and lower returns. and they get a marketing channel from Afterpay…which ultimately helps those merchants grow their business and that’s what it’s all about.”

Afterpay lets customers pay in four interest-free installments and pay a fee if they miss an automated payment. Its 16 million customers will eventually be able to manage installment payments directly via Cash App. The transaction is expected to close in the first quarter of 2022.

So-called installment loans have been around for decades and were historically used for large purchases such as furniture. Online payment players and fintechs have been in competition to launch their own version of “pay later” products for online items worth a few hundred dollars.

To assert is one of the most well-known public companies offering the ability to finance items in smaller monthly installments. PayPalKlarna, MasterCard and Fiserv, American Express, Town and JPMorgan Chase all offer similar loan products. Apple plans to launch the installment loan in partnership with Goldman SachsBloomberg reported last month.

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Square also announced its second-quarter results on Sunday, ahead of Wednesday’s scheduled release.

Gross profit rose 91% from a year ago, marking a record quarterly growth rate for the payments company. Cash App profit increased 94%, while Seller jumped 85% from a year ago. Non-bitcoin net income was $1.96 billion for the quarter, an 87% year-over-year increase.

The company’s Venmo competitor, Cash App, now has 40 million active customers transacting monthly.

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