Investors are bidding down shares of Square (NYSE:SQ) on Monday morning after the San Francisco fintech agreed to buy Australia’s buy-on-time provider Afterpay (OTCMKTS:AFTPY). News of the $29 billion all-stock deal extended Friday’s SQ stock slide.
Afterpay enables consumers to buy items online without having to spend anything up front. There’s no extra charge for users if they pay back their four installments on time. It’s the retailers that are charged a fee for the service. Some 100,000 retailers around the world offer the service, which has more than 16.2 million customers, according to a statement from the two companies.
Back in the day, shoppers often used stores’ lay-away plans to “buy now, pay later.” A new generation of shoppers, though, wants immediate gratification but are weary of traditional — read “high interest” — credit programs. While “buy now, pay later,” or BNPL, accounted for just 2% of U.S. e-commerce payments last year, according to FIS Global, they’re rapidly gaining in popularity. The total value of purchases made using such offerings increased 132% in the first quarter, per data from Cardify.ai.
Meanwhile, shares of BNPL service provider Affirm Holdings (NASDAQ:AFRM) were surging this morning, up more than 8% in premarket trading.
SQ Stock Deal Will Pair Cash App With Afterpay
“Square and Afterpay have a shared purpose,” Square CEO Jack Dorsey said in a statement. “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.” His firm’s Cash App now has 70 million users.
For Dorsey, though, his “purpose” is finding new weapons to challenge competitors like PayPal (NASDAQ:PYPL). “The transaction will help Square to catch up to emulating PayPal’s consumer and merchant ecosystem, provide Square with a boost in its efforts to serve larger merchants, and expand the company’s geographic footprint,’ said JMP Securities analyst David Scharf.
SQ stock had started to rally in the lead-up to its second-quarter earnings on Aug. 5. Strong second-quarter results could be the spark needed to push the shares to new heights, InvestorPlace contributor Joel Baglole wrote last week. He noted that investors were watching to see what the fintech would do to drive growth.
On the date of publication, Robert Lakin did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
InvestorPlace contributor Robert Lakin is a veteran financial writer and editor, including previous stints with Bloomberg News and as a buyside equity research editor.
