$29B Afterpay deal gives Square neobanking growth opportunities in US, Australia

The news: US-based Square plans to acquire buy now, pay later (BNPL) provider Afterpay in an all-stock deal worth about $29 billion. The deal, which is slated to wrap up in Q1 2022, calls for Australia-based Afterpay to be integrated into its Seller and Cash App operations.

More on this: Square believes the merger will produce several product-line synergies that it can deliver to its merchant and consumer segments, including:

• Deploying Afterpay’s BNPL feature to Square’s merchants, which they can offer as another payment option to their own customers at checkout.
• Enabling Afterpay’s users to oversee their installment payments in Cash App.
• Helping Cash App users discover merchants and BNPL offers within the app itself.

The deal gives Square a user base of over 16.2 million customers worldwide, plus almost 100,000 merchants. Square will get Afterpay’s BNPL offering in the fintech’s eight markets: Australia, New Zealand, the US, Canada, the UK, Spain, Italy, and France.

The opportunity: The combination gives Square neobanking growth opportunities in two countries:

• The US: Last month, Square jumped into neobanking on the small- to medium-sized businesses (SMB) side when it rolled out checking and savings accounts as part of its new banking suite. After it gains banking experience, Square could take Afterpay’s BNPL platform, couple it with Cash App, and roll both into a consumer-focused neobanking arm. The regulatory process for offering such a product wouldn’t be complicated, as Square has a banking license.
• Australia: Afterpay had already planned a dive into consumer neobanking with a savings app called Money by Afterpay. Square could promote the new app to BNPL customers and lay the groundwork for pairing it with Cash App. Square may also expand its SMB neobanking business into Australia, where it could promote the suite to its existing local merchant users. It could fill the gap created in Australia’s consumer-side neobanking landscape when 86 400 and Xinja exited and Volt opted to focus on the banking as a service (BaaS) space. On the SMB side, Square could pose a threat to Judo Bank, which closed on a new funding round in June.