What The Square And Afterpay Deal Really Means

Oct 27, 2021

On August 1, 2021, Square broke the news that it was purchasing Afterpay, an Australian fintech company for $29 billion in stocks. 

Square’s CEO, Jack Dorsey, said:

“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.”

Afterpay allows customers to pay in four installments, interest-free. If there are any missed payments within the agreed automated payment system, there is a fee incurred. Now, its 16 million customers will have the ability to manage their payment installments within Square’s CashApp. The deal is said to be finalized by the first quarter of 2022.

Why The “Unlikely Pairing”?

The growing appeal of Buy Now, Pay Letter (BNPL) has taken the country by storm, crossing every generational barrier. The space has generated a whopping $20 billion in US transactions alone. 

Why BNPL? Like layaway plans of the past, this concept has evolved into a loan of sorts, called a “point-of-sale loan.”  How it works is that the plan lets shoppers divide their purchases into more manageable, monthly payments of equal value, without the fear of interest or fees. They can use their debit cards, giving the impression that an otherwise expensive item can feel more affordable. 

Lenders typically partner up with retail stores such as Macy’s, Walmart, and Peloton to offer such services. 

According to Kaleido Intelligence, it is estimated that consumers will spend about $680 billion worldwide by using these “point-of-sale installment payments” using e-Commerce channels by the year 2025. 

It is no wonder that fintech giants such as PayPal and AmericanExpress have been rushing towards this goldmine, hoping to launch their own iteration of BNPL products for online goods that will cost in the “low hundreds of dollars.”

Square’s acquisition grants them both the opportunity to scale their multi-channel payments, commerce, and financial services ecosystem. It also takes advantage of Square’s integrated POS platform and merchant services capabilities to not only maintain but grow its merchant base. 

In addition, this acquisition offers Afterpay and Square’s CashApp users the means to do more business within the newly reformed ecosystem. 

The end game is to attract more merchants to the platform, thereby attracting more consumers. 

Anthony Eisen and Nick Molnar, Afterpay Co-Founders and Co-CEOs, had this to say:

“By combining with Square, we will further accelerate our growth in the U.S. and globally, offer access to a new category of in-person merchants, and provide a broader platform of new and valuable capabilities and services to our merchants and consumers. 

We are fully aligned with Square’s purpose and, together, we hope to continue redefining financial wellness and responsible spending for our customers. The transaction marks an important recognition of the Australian technology sector as homegrown innovation continues to be shared more broadly throughout the world. It also provides our shareholders with the opportunity to be a part of future growth of an innovative company aligned with our vision.”

What’s Next?

The recent acquisition of Square/Afterpay serves as a serious talking point for traditional banks and credit card networks. The conversation should take great consideration as to what role they should be playing within the exploding BNPL space.

Banks, in particular, need to proceed with caution, being careful not to jeopardize their current credit card revenue stream. One good strategy is to look into acquiring key BNPL players that are more in line with their own platforms. Big Tech firms’ desire to acquire BNPL firms could be met with opposition as the US does not wish them to get any bigger.

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

After filling out EMB’s simple online application and submitting any necessary, requested documents, many merchants get approved within 24 and 48 hours.

EMB specializes in working with high-risk merchants. EMB works with many merchants, including but not limited to businesses in these industries: gambling and gaming, adult entertainment, nutraceuticals, vaping and e-cigarettes, electronics, tech support, travel, high-end furniture, weight loss programs, calling cards, e-books and software, and telecommunications.