The shareholders of Afterpay have given their thumbs up to Square acquiring the fintech company for $29bn. Twitter founder Jack Dorsey’s side-hustle is one step closer to creating a financial super-app that doesn’t just provide payment and cryptocurrency solutions, but may soon also cut into the fashionable buy-now-pay-later (BNPL) industry.
Square’s acquisition of Afterpay also marks a trend where big financial players are muscling into the BNPL sector and existing BNPL providers are responding by expanding their own offering outside instalment services.
“There is certainly a prospect that the large BNPL players will become more like traditional fintechs, such as PayPal,” Nick Maynard, head of research at Juniper Research, tells Verdict.
“While BNPL is a massive growth area, it is limited to a specific role. However, if players like Klarna have access to users and their payment details, they can also offer a more traditional digital wallet option at checkout, which broadens their appeal.”
This week, Swedish quadradecoacorn Klarna made it clear that it doesn’t view smaller businesses like Zilch or Scalapay as its main rivals. Instead, as it rolled out its shopping app across 10 new markets and announced the estimated $1bn acquisition of PriceRunner, it let it slip that has set its sights on toppling the likes of Amazon, Facebook and Google. Or at least, it hopes to take a slice of the Big Tech companies’ earnings.
Klarna had previously launched a price-comparison service that saw it muscle into Google’s ads-listing business. In short, the company is evolving – as is the rest of the industry.
“BNPL is becoming much more than spreading the cost of purchase,” Jaimini Pattani, retail banking analyst at GlobalData, tells Verdict. “It is now about providing a complete and unique shopping and, in the case of Klarna, a banking experience to customers. Klarna has rapidly expanded its services benefiting retailers and customers. It’s clear that Klarna is aiming for a super-app style product and other players in the market are recognising this.”
Square seemingly has a similar idea. Dorsey founded the payment company in 2009. It now has a market capitalisation of $116.5bn. Having originally offered card readers for mobile devices, the venture has since expanded its services to include business financing, person-to-person money transfers and bitcoin trading. The Afterpay acquisition will see it add BNPL services to its offer.
Square made its intentions to acquire Afterpay known in August. The fintech company said the acquisition was expected to be completed by the end of March 2022. With the shareholders having voted for the deal to go through, the two companies are now just waiting on approval from regulators.
The news of the Afterpay shareholders approving the Square deal comes at a time of explosive growth for the BNPL industry. The sector is expected to keep growing to be worth $166bn by 2023, according to GlobalData’s thematic research.
At the same time as Klarna is expanding its services and Square moves to bring Afterpay into the fold, other big names in the fintech industry are moving into the space.
PayPal and Mastercard have both launched instalment services. Apple is rumoured to be launching its own BNPL service and has partnered with Affirm to bring a joint service to Canada. Challenger banks like Monzo, Revolut and Lunar are also adding BNPL services to their UX.
“The likes of Monzo and other banks are now offering BNPL options,” Pattani says. “Still, it will be difficult to draw customers away from the more prominent players in the BNPL market as competition is heating up and banks have reluctantly only now started to incorporate BNPL services into their offerings at the most basic level.”
In short, traditional players are moving into the sector and the likes of Klarna are expanding their offering to strengthen their positions. The competition between these different actors is only set to intensify.
“Ultimately, it comes down to access to users – if they have the access, they will look to grow in new areas to exploit this,” says Maynard.
Verdict deals analysis methodology
This analysis considers only announced and completed deals from the GlobalData financial deals database and excludes all terminated and rumoured deals. Country and industry are defined according to the headquarters and dominant industry of the target firm. The term ‘acquisition’ refers to both completed deals and those in the bidding stage.
GlobalData tracks real-time data concerning all merger and acquisition, private equity/venture capital and asset transaction activity around the world from thousands of company websites and other reliable sources.
More in-depth reports and analysis on all reported deals are available for subscribers to GlobalData’s deals database.