Tuesday, August 3, 2021
Not to be left out of the action, payments disruptor Square disclosed on Aug. 1, 2021, that it plans to acquire Afterpay, one of the largest players in the BNPL market, in an all-stock deal valued at $29 billion.
BNPL schemes allow consumers to spread the cost of purchases across a set period time through weekly, bi-weekly or monthly installments. They are akin to the layaway plans that were popularized by retailers in the 1960s and 1970s, with one important difference: consumers take immediate possession of their purchases just as they would with any other POS transaction.
BNPL options have become increasingly popular since the onset of the COVID-19 pandemic, particularly among younger consumers, according to several surveys. A March poll of American consumers, by Motley Fool, revealed that 55.8 percent of respondents had used a BNPL service, up from 37.6 percent in July 2020, representing nearly 50 percent growth in less than a year. eMarketer research suggested 72.3 percent of BNPL users this year will be millennials and Gen Zers.
Euromonitor estimated the BNPL market accounted for $1.4 trillion in global payments volume in 2020. Research & Markets expects nearly 42 percent growth in BNPL in the United States this year, to top $126 billion, and a combined annual growth rate of nearly 14 percent through 2028. Most of the focus to date among leading providers of BNPL has been online sellers. PayPal, for example, reported that, in the first six months following the August 2020 rollout of its Pay in 4, the BNPL service drove $1 billion in total payments volume.
Evidencing the potential for BNPL in brick-and-mortar settings, Afterpay in July announced a deal with Unibail-Rodamco-Westfield, which operates scores of shopping malls throughout the United States and Europe. Several retailers with shops in those malls already have begun offering Afterpay, including The Container Store, The Children's Place, Aldo and Lush Cosmetics, the two companies said in a press release.
The appeal of BNPL for consumers is obvious. They get to buy something when they might not have sufficient cash or credit lines to purchase at the time, and provided they make all payments on time, they do not incur interest or other charges. The appeal for merchants is the savings on interchange.
Visa executives have seen the writing on the wall, and they have been readying a BNPL service that competes with the likes of Afterpay, generating income streams for card issuers and acquirers. There's even a page on its website explaining that, "In the near future, Visa will be releasing capabilities on Visa Developer to allow clients to develop and pilot installment experiences to offer to their customers."
In an earnings call, in late April, Visa Chairman and CEO Alfred F. Kelly Jr., said Visa is looking at "a whole bunch of options" for benefiting from the BNPL trend. For example, leveraging Visa virtual cards for repayments, or cards on file. Leveraging the P2P service Visa Direct may also be an option, Kelly suggested. "And in many of those cases, what ends up happening is a single purchase turns into a number of installments, so that one transaction can end up being three or four or five payment transactions, which is certainly very good for us," he added.
In a July 13 statement, Visa said Canadian merchants that are clients of Global Payments can offer the service without requiring consumers to sign up in advance, and that the services can be enabled by "a single integration." Issuers like Desjardins that are enabled for Visa Installments will be able to offer cardholders installment options at participating Global Payments merchants, Visa stated.
"We believe the time is right for installments, to address the growing merchant and consumer demand for innovative, flexible payment options, furthering our commitment to helping drive growth for our merchant customers," said Rene Belanger, Global Payments president for Canada and Latin America.
According to Visa Canada, BNPL adoption has grown by 30 percent in the past year there, and BNPL represents a $40 billion annual payment opportunity.
For its part, Square plans to integrate Afterpay into its existing Seller and Cash App business units, a move the company said will "enable even the smallest of merchants to offer BNPL at checkout." Consumers will be able to manage installment payments directly in Cash App, which also will feature a mechanism that helps consumers identify merchants with BNPL offers.
Afterpay, an Australian financial technology firm, claims more than 16 million consumers use its BNPL service at nearly 100,000 merchants worldwide, including key verticals like fashion, housewares and sporting goods.
Jack Dorsey, Square co-founder and CEO, explained in a statement that the two companies "have a shared purpose" to bring "fair" financial services to the general population. "Together we can better connect our Cash App and Seller ecosystems to deliver even more compelling products and services for merchants and consumers," he 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," said Anthony Eisen and Nick Molnar, Afterpay co-founders and co-CEOs.
Under terms of the agreement, Square will purchase all outstanding shares of Afterpay stock for 0.375 shares of Square Class A common stock for each share of Afterpay, based on the Square's closing price on July 31, which was $247.26. That works out to $92.97 per Afterpay share, better than a 30 percent premium over Afterpay's per-share price on that date.
The two companies expect to close the deal in the first quarter of 2022. 
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