The race to run buy now, pay later (BNPL) just picked up its pace again, as Square announced plans to purchase BNPL giant Afterpay in a $29 billion all-stock deal.
Highlighting the brands’ similarity in a joint release, Square Founder and CEO Jack Dorsey noted that as a result of the deal, Afterpay will be integrated into both Square’s Seller and Cash apps, bringing BNPL services at checkout to merchants of all sizes while allowing Afterpay consumers to manage their installment payments directly through the Square Cash App. The Cash App will also serve as a merchant discovery tool for Afterpay consumers, according to the release.
“Square and Afterpay have a shared purpose,” Dorsey said in the release. “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.”
The Most Unsurprising Shock Of The Summer
Before the announcement, no one was really talking about an Afterpay-Square merger, making it shocking enough to hold the headlines of the day.
But given the state of the BNPL race, and how swiftly it has been picking up speed for the last several years, a big BNPL combination power play was inevitable.
Add in the fact that consumers — particularly younger ones — continue to want BNPL, and the purpose of the tie-up becomes even more clear. According to PYMNTS data from May, 48 percent of BNPL users said they would not buy from a merchant that did not offer a BNPL option. More than 26 percent of millennials and nearly 11 percent of Gen Z consumers had tapped BNPL to finance their most recent online purchases, compared to only 7.5 percent of older generations who had done the same.
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And while BNPL got its start in categories like apparel and beauty products, it has rapidly expanded, according to PYMNTS’ Buy Now, Pay Later: The Financial Self-Care Revolution Report. According to that report, consumers have increasingly found that “BNPL provides a rapid pathway to retail shopping for larger purchases and helps rescue blemished credit histories.” The report also found that ease of use and the ability to spread out payments into more manageable installments were the most cited reasons for choosing BNPL, regardless of a customer’s financial history or access to mainstream credit products.
“In Australia three financial years ago, fashion and beauty represented north of 70 percent of our total sales,” Afterpay U.S. CEO Nick Molnar told Karen Webster earlier this year. “Now it represents just 40 percent of total sales. The glide path over time has been toward using Afterpay to buy everything from airline tickets to going to the dentist. I think you’ll see that start to unfold in the North American market and, more broadly, in other parts of the world.”
The focus for Afterpay going forward, in its pre-merger days, was on continuing to build to that next-generation millennial or Gen Z consumer with an eye toward expanding their acceptance network to where they actually shop — both online and in-store.
In fact, in store expansion has been a big part of Afterpay’s focus in 2021 as it signed a deal in July to bring the service to all U.S. Westfield mall properties. It marked another step, Afterpay General Manager of North America Zahir Khoja told PYMNTS, of the company striving to meet its millennial consumers where they are now and where they will want to be in the future.
“They’re going to want to spend and buy and purchase in person — data tells us that millennials are among the most eager to get back into the mall,” he said. “So adding technologies like buy now, pay later into traditional shopping centers is another step to bring them into this world of the future of retail.”
The deal with Square, it seems, is yet another expansion of Afterpay into the physical world of commerce. As Molinar and Co-Founder and Co-CEO Anthony Eisen noted in the news release, “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.”
The Creeping Competition
The Square-Afterpay pair-up comes as the BNPL place has gotten very action-packed over the last several weeks. The CFPB has finally taken notice of the emerging financial field — and its attitude so far is more warning than welcoming. Afterpay was one of many BNPL pure payers to take a hit when rumors of Apple’s intentions to enter the space as a competitor began to circulate a few weeks ago.
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Everyone, it seems, is suddenly taking a closer look at the BNPL market — and trying to figure out fast where their entry point will be.
Square, which already offers its merchants the ability to offer BNPL to their customers, seems to have decided to jump straight into the deep end of the competition with an almost $30 billion investment in the space with a large and very well-known name.
The games, it seems, have begun. And more likely than not, it only gets bigger, faster and more expansive from here.