How Square Can Overload Buy Now, Pay Later


Square (NYSE: SQ) is embarking on the buy now, pay later trend with the acquisition of After payment (ASX: APT), the world leader in this payment service. The combination of the two companies will allow Square to capitalize on the growing trend and drive the growth of Afterpay in the US, UK and other countries in which it operates.

A new element of the Cash App ecosystem

Square is coming to the table with 70 million Cash App users that it plans to bring into Afterpay. “Afterpay will expand the growing range of Cash App products, allow customers to manage their refunds and help customers discover new merchants,” the company wrote in a press release announcing the $ 29 billion deal.

Cash Card and a Square card reader. Image source: Square.

Square is particularly good at getting its Cash App users to try out its new services by offering attractive incentives. For example, he could integrate Afterpay’s buy now, pay later service into his payment card, allowing buyers to use Afterpay at virtually any merchant. Many BNPL services have taken this approach, including Afterpay, instead of trying to integrate directly into the merchant payment flow.

Square could also promote Afterpay through Boosts, offering customers financial incentives to try the service. It can compensate for self-promotion with higher value and more frequent purchases.

Plus, Square can make better lending decisions based on what it knows about its customers. If a customer has set up their direct deposit with Cash App and receives a paycheck twice a month, Square may offer a loan that they know the user will most likely be able to repay on the terms provided.

Square could have created its own buy now, pay later service from scratch, but the acquisition of Afterpay accelerates its plans and attracts an additional 16 million customers.

Offer Afterpay to more merchants

Afterpay already works with 100,000 merchants, but Square claims “millions”. Additionally, most of Square’s sellers are physical retailers with little exposure to the BNPL trend. This gives Square a big advantage as competitors in the industry try to get into physical retail. And using a brand like Afterpay, which has built trust between merchants and customers, will help with adoption.

Additionally, Afterpay is expected to help Square integrate more online and omnichannel merchants. Its omnichannel efforts have accelerated during the pandemic, and the addition of Afterpay is another step towards earning the payment button on merchant websites. BNPL can act as a ramp for the entire Square Seller ecosystem.

Connect the two ecosystems

Ultimately, Square’s goal is to connect both its Seller and Cash App ecosystems, and Afterpay is one way to do that. If a seller offers BNPL with Afterpay in their store (physical or online), Square can manage this loan in the Cash app. Likewise, if a consumer uses Afterpay in Cash App, Square can push that consumer to its other merchants who accept Afterpay.

Connecting the two ecosystems provides new opportunities to leverage the existing customer base on one ecosystem to grow the other. For example, being prompted by a merchant to use Afterpay could cause a consumer to download and use Cash App for the first time.

Increasing these connections will allow Square to grow faster than if it were running siled products. And while Square is paying a high price to take control of Afterpay, management sees the acquisition generate positive gross profit in its first year with a slight drop in its EBITDA margin over the same period. If Square does, increasing engagement among Cash App users and sellers while producing stronger growth in both user bases, the acquisition will deliver excellent long-term results for investors in the industry. fintech action.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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