Square announced the $29 billion, all-stock deal on Sunday evening. The price tag announced by Jack Dorey’s company marks a roughly 30% premium to Australian fintech company Afterpay’s last closing price. Share of the local fintech company Afterpay surged on the news and closed nearly 19% higher on Monday.
Jack Dorsey’s company made the decision to buy Afterpay, as it looks to expand further into the looming installment loan market. Square already offers installment loans, and it plans to integrate Afterpay into both its seller and Cash ecosystems.
Australian fintech company lets customers pay in four interest-free installments and pay a fee they miss an automated payment. Afterpay’s 16 million customers will eventually be able to manage installment payments directly through Cash App. The deal is expected to close in the first quarter of the next year.
Square and installment loans
So-called installment loans existed for decades and were historically used for big-ticket purchases such as furniture. Online payment companies, as well as fintechs, have been competing to launch their own version of “pay later” products for online products in the low hundreds of dollars.
Affirm is one of the most well-known public companies offering the option to finance items in smaller, monthly payments. Mastercard, PayPal, Klarna, American Express, J.P. Morgan Chase, and others offer similar loan products. The tech giant Apple is planning to launch installment lending in a partnership with Goldman Sachs. Square’s Venmo competitor, Cash App now has 40 million monthly transacting active customers.
The San Francisco-based payments company also announced its second-quarter results on Sunday. Gross profit rose 91% from a year ago, which marked a record quarterly growth for Square. Net revenue excluding Bitcoin came in at $1.96 billion for the second quarter, an 87% rise year over year.