Square buying Afterpay, one of the biggest names in buy now/pay later

Square has agreed to acquire the Australian installment lender Afterpay for $29 billion, a deal that would make the payments giant a major contender in the buy now/pay later market.

Square already offers installment lending, but it is a far cry in popularity from Afterpay, an Australian provider that is second only to PayPal in consumer usage, according to C+R Research. The acquisition will bring Square 16 million customers and an expanding U.S. business. Square plans to integrate Afterpay into its Seller and Cash app units, targeting small to mid-sized businesses. Afterpay's consumers will be able to manage installment payments directly in the Cash app, and Cash consumers will be able to find merchants and BNPL offers in the Cash app.

There are numerous potential synergies, given the importance of Cash to Square's overall business. Cash, which got its start as a peer-to-peer transfer app, now accounts for more than 80% of Square's revenue due to its use for bitcoin trading. Afterpay offers installment payments for both e-commerce and brick-and-mortar lending. Its North American sales have tripled thus far in 2021.

Cash has become Square's portal to many of its consumer and business-facing products. Adding Afterpay will give Square merchants access to a broader menu of financial services at a time when many of Square's rivals are also making big bets on BNPL.

Apple is building a BNPL service through its partnership with Goldman Sachs, while PayPal's Pay in 4 is a major component of PayPal's financial "super app" strategy. Other competitors in the BNPL market include Affirm, Klarna, Splitit and Sezzle.

The $29 billion deal, which Reuters reports is the largest ever buyout of an Australian company, is expected to close in 2022, though it will need to clear regulatory hurdles in Australia.

Square and Afterpay did not return requests for comment. "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,” Jack Dorsey, co-founder and CEO of Square, said in a press release. “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.”