At first glance, Square's $29 billion deal to buy Afterpay looks like a smart move into the fast-growing "buy now, pay later" space. But it's far more significant than just offering consumers the short-term installment plans that have grown popular among credit-wary young shoppers.
With the Afterpay deal, Jack Dorsey is making a strategic turn, linking the core Seller and Cash App businesses more closely after years of fostering them as independent units under the Square umbrella. Afterpay could turn into a $29 billion bridge between Square's many businesses, bringing Square's business success and customer ambitions into a single product. In doing so, Dorsey's also potentially fulfilling a decade-long dream of having a brand that dominates the way people shop and pay. It just won't be called "Square."
Square struggled to get consumers to adopt its apps in its early years, despite having a charismatic founder, distinctive design and an almost cult-like following among small business owners. It didn't help that it kept changing the name: Pay With Square, Card Case, Wallet, then Order (R.I.P., all of them).
Even a huge deal with Starbucks to let customers order lattes with the Wallet version of the app in 2012 — two years before Starbucks would introduce its own app — couldn't realize Dorsey's ambitions of getting space on people's home screens. Square eventually faced up to this reality, killed off the app, undid the Starbucks relationship and called the business unit that processed payments and made hardware for merchants "Seller."
So where's Buyer? As Wallet was floundering, Square launched a side project called Square Cash in 2013. Now known as Cash App, what started as a simple Venmo knockoff is now a major money machine for Square. In 2015, Cash added business payments. Rappers started dropping their cashtag in lyrics. By 2018, you could buy bitcoin; by the next year, stocks.
Seller, meanwhile, was branching out from physical retail into online. It added website building (with the Weebly acquisition), invoices and a host of other features. Those proved crucial during the pandemic when lockdowns forced many small retailers to rely on ecommerce to survive.
"Buy now, pay later" is still a small part of consumer credit. But merchants like the installment plans, because they lift conversion rates. And companies like Affirm and Klarna are betting that once a shopper uses their services, they'll come back for their next purchase too. Klarna has gone on an acquisition spree to add features to its app. Square is betting that Afterpay will turn Cash App from a money-sending and investing app into a spending app too — a financial super-app.
There's also PayPal, which also wants to make its already popular mobile payments tool a super-app — one app to pay for almost anything. It also offers "buy now, pay later" plans. Square will be tackling PayPal in an area of strength, ecommerce, while fending off PayPal's attempt to chip away at its in-store payments with its iZettle acquisition. (Past attempts by PayPal to compete with Square were kind of embarrassing: Remember that triangular dongle?)
Square's strategy most resembles Klarna's, including adding tools for discovering merchants. (Shades of the past: Discovering Square sellers nearby was a key feature of the Card Case app.) But it has the huge advantage of the installed base of Cash App, which, after the deal closes, will be where Afterpay shoppers go to manage their payments.
That will mean tighter links between Seller and Cash App. Though Cash App has obviously benefited from the company's payments expertise, it hasn't found many ways to benefit from Square's seller base, or to benefit them. Cash App users can spend their balances at Square registers, if they get a physical debit card or persuade a harried clerk to find the Square point of sale app's QR code to scan.
In this scenario, "buy now, pay later" is a way to get Cash App users to start thinking about using the app to do more than send money to friends. Cash App users might tap a pay-in-four plan, or might use a linked credit or debit card, or spend a stored balance. What that adds up to: Dorsey has finally gotten his wallet app.
