The earth shifted under the feet of the Fintech industry on Sunday after Square (NYSE: SQ) disclosed plans to buy up the buy now, pay later behemoth Afterpay (OTC: AFTPY) in a $29 billion all-stock offering.
The acquisition, the largest ever in both Square and Australia's history, priced shares of Afterpay at a 31% premium based on Friday's closing cost of $96.66.
"Square and Afterpay have a shared purpose," said Square co-founder and Twitter (NYSE: TWTR) chief Jack Dorsey in a statement, while elaborating that both companies share a vision to make financial services more fair and inclusive. "Together we can better connect our Cash App and Seller ecosystems to deliver even more compelling products for merchants and consumers," he added.
Recently, Square radically expanded its business banking offering to extend checking and savings accounts and loans to the millions of merchants within its network. However, in Afterpay, Square makes its first foray into the world of consumer lending.
The buy now pay later trend has exploded late as younger, more tech-savvy consumers seek to escape the fees and high interest of traditional credit cards. Once again, in Afterpay, Square sees a way to draw in those looking for such an alternative.
Afterpay currently has 16 million customers and a global network of 100,000 merchants. Square would increase Afterpay's reach exponentially, putting its functionality into the hands of 70 million Cash App users and the millions of sellers within the Square network.
Once Afterpay is integrated fully on the Cash App side, customers will be able to manage their repayments and scope out deals from within the app. Merchants, in the meantime, will benefit from increased foot traffic and higher receipts as customers will be able to, well, buy more now to pay off later.
In a statement, Afterpay's co-founders and joint chief officers Nick Molnar and Anthony Eisen said the deal marks "an important recognition of the Australian technology sector as homegrown innovation continues to be shared more broadly throughout the world."
However, Bloomberg Intelligence analysts Matt Ingram and Regan Burrows point out that Afterpay's shareholders could still reject Square's bid. Given that the deal prices the companies shares below their peak, reached earlier this year.
Combined, Square and Afterpay are sure to prove themselves a juggernaut in the ever-evolving buy now, pay later space. But that space is growing ever more crowded. Recently, Bloomberg broke the news that Apple (NASDAQ: AAPL), in partnership with Goldman Sachs (NYSE: GS), plans to bring buy now pay later to iPhone users.
With Cash App, Afterpay could bring in a potential 70 million new customers. But Apple's entry to the field would bring that same functionality to hundreds of millions of iPhone users.
Ultimately the success of Square's push might depend on how many download Cash App, before Apple eventually brings buy now pay later to an iPhone near you.
The ink is expected to dry on Square's bid to buy Afterpay in early 2022.