Lately, we’ve been seeing a frenzy of venture capital and M&A deals. This accumulation of high-flying financial deals is fueled by money printing and particularly low interest rates. And while Bitcoin has been shy recently, the financial ecosystem is well and truly in a state of flux, as Square’s acquisition of Afterpay shows.
Square takes advantage of the bull run to grow revenue
In a communication to its investors, payments giant Square had announced that customers bought $2.72 billion worth of bitcoins in the second quarter of this year. Meanwhile, Square’s Q2 net revenue was $4.68 billion, up 143 percent. The fintech’s gross profit, meanwhile, was $1.14 billion, up 91 percent from 2020.
“Our ecosystem continues to be a differentiator, as we see customers who trade stocks or hold them in their wallets shifting more to other products, such as payment cards or bitcoin, and generating greater gross profit per customer.”Square release
Afterpay acquisition for $29 billion
Fractional payments have been gaining momentum for several years within Western economies. This system can be summarized by the motto “buy now, pay later”. On August 2, Square announced the acquisition of Afterpay.
Initially, the deal was supposed to be finalized during the first quarter of 2022, but Square reached into its pocket to speed up the process and acquired the Australian fintech for $29 billion. The deal was done by transferring Square shares to Afterpay shareholders. Jack Dorsey, the CEO of Twitter and Square, offered 0.375 Square shares for each Afterpay share, which represents a valuation premium of more than 30% compared to the last price of the 2 companies.
Indeed, on July 30, Square shares closed at $247.26 and Afterpay shares at $96.66. Under the terms of the deal, the acquisition would value the stock at $126.21, a nice instant gain for investors positioned in the stock.
Is split-payment a good thing for consumers?
As of June 30, the Australian company had 16 million customers and nearly 100,000 affiliated retailers in a variety of sectors, including fashion, home furnishings, beauty and sports. The combination of the two companies would create an unrivaled payments giant. Over the past 18 months, the “buy now, pay later” segment has exploded. It is especially appealing to young people who are attracted to the idea of spreading their spending over time by opting for short term loans, which have become ubiquitous online and in retail stores.
However, the explosion of fractional payments has authorities concerned, especially in France. In fact, the excessive use of this practice can have a perverse effect. Consumers do not immediately realize that by making a multitude of purchases with staggered payments, they are putting themselves in a position of excessive debt.
In May 2021, France had proposed to tighten the regulations on split payments in order to protect consumers. The revision of the European directive on consumer credit will include discussions on this topic. For the time being, these micro-credits are not covered by consumer credit regulations. And the European Commission intends to remedy this.