SYDNEY— Square Inc. has agreed to acquire Afterpay Ltd. in an all-stock deal worth around $29 billion, illustrating how financial technology companies are seeking scale to challenge banks for a bigger slice of the payments industry.
Square said a key attraction of the deal was a growing wariness toward traditional credit among younger consumers, a group particularly hard hit by the Covid-19 pandemic, as lockdowns crushed many hospitality and casual jobs.
Afterpay’s technology allows users to pay for goods in four, interest-free installments while receiving the goods immediately. Customers pay a fee only if they miss an automated payment, a transgression that also locks their account until the balance is repaid. Australia-based Afterpay, which has yet to turn a profit, says this limits bad debts, particularly in a downturn when job security is shaky and household finances are stretched.
Most of Afterpay’s revenue comes from retail merchants, which pay a percentage of the value of each order placed by customers, plus a fixed fee.
“Square and Afterpay have a shared purpose,” said Jack Dorsey, Square’s chief executive. “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.”