May seem odd to pay money that you don’t have, but Square seems to think otherwise after offering to buy Afterpay for US$29 billion.
What is Square?
- Started by Twitter founder and chief executive officer Jack Dorsey back in 2009, Square Inc. is mainly a digital payments company for small businesses and everyday people.
- Basically, Square has a device that people can attach to their phones that lets them take credit and debit card payments without having to use a complicated machine.
- Dorsey thought of the idea for the company after he wasn’t able to complete a sale for his glass faucets and fittings because the person that was buying them only had a credit card.
- Of course, digital payments have become a lot easier with the introduction of services like Venmo, Alipay and Cash App, but not only does Square actually own Cash App, the company also offers a variety of financial services for small businesses, such as payroll, appointment booking and business financing.
- This past weekend, Square announced that it was going to move into a new venture by offering to buy Australian startup, Afterpay Ltd.
What does Afterpay do?
- Afterpay is exactly what it sounds like – pay after you buy.
- Afterpay was started in 2014 by Nick Molnar and Anthony Eisen. And, thanks to Afterpay’s success, Molnar has become the youngest self-made billionaire in Australia.
- The company was founded with a very simple principle – a “pay later" service that allows in-store and online customers to purchase a product immediately and pay for it later with four equal repayments.
- The four payments are interest-free, but if the user doesn’t pay every two weeks as required, late fees are accrued.
- It may seem odd to pay money that you don’t have, but Square seems to think otherwise after offering to buy Afterpay for US$29 billion.
Do people really spend money they don’t have?
- Well, have you ever heard of a credit card? That’s similar to Afterpay in that people are using money that they don’t have while promising to pay it later.
- In fact, recent statistics from the consumer debt data from the Federal Reserve Bank of New York, show that there is over US$750 billion worth of credit card debt in the United States in the first quarter of 2021.
- Their study also showed that the national average card debt among cardholders with unpaid balances was US$6,569.
- LendingTree noted that, for all credit cards, the average interest was 16.30% in the second quarter of 2021 which means the average debt holder is paying an additional US$1,070 a year on their credit card.
- Not only does Afterpay not have a standard interest rate, but the company’s existence has led to more millennials ditching their credit cards.
What’s the general vibe of the acquisition?
- If anyone is excited about the announcement, it’s Dorsey who described the similarities between the two companies.
- “Square and Afterpay have a shared purpose,” said Dorsey. “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.”
- Afterpay’s CEOs indicated that they are also excited about the buyout in a joint statement in which they said, “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.”
- Users of both Cashapp and Afterpay will also be able to use Afterpay’s installment plan through the Cash App which will only benefit both users.
- Overall, the news of the company’s joining forces has been met with excitement as both companies’ share prices have increased significantly today. Square saw a 10% jump while Afterpay increased 35% this morning.
What comes next for Square and Afterpay?
- Afterpay is seemingly on a pathway to success with this recent deal, and Square is currently in a bit of an acquisition mood.
- Back in March, it agreed to acquire a majority stake in Jay-Z’s streaming music service Tidal for US$297 million.
- And, in July it acquired a team management platform called Crew, which essentially just lets companies manage their entire teams from management to front-line employees. But, details of how much the purchase cost the company were not made public.
- With the recent acquisition of Afterpay, the company is looking to expand beyond its initial design of letting Dorsey sell his glass faucets and fittings with a credit card.
- The American company’s recent trend is similar to its largest international competitor and one of the most profitable tech companies in China, Alipay, which is owned by Alibaba Group Holding Ltd.
- How? Well, Square is looking to make finance options more accessible for everyday people, which involves offering everything related to finance. And, while Square may not be able to measure up to Alipay just yet, the company is certainly trending in the right direction.
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