Square's (SQ 0.56%) plans to acquire Australian fintech Afterpay sent the U.S. digital payments giant's stock up more than 10% on Monday. Square is making a big bet on the "buy now, pay later" (BNPL) company, which began its expansion into the U.S. in 2018 and now earns almost half its revenue in the States.

Afterpay is one of the pioneers of the BNPL trend, which has exploded in popularity with younger shoppers. Founded in 2015, the company now has over 16.2 million users globally and allows consumers to finance small purchases (usually less than $1,000) through participating merchants, with no credit checks or interest charges. The model has taken share from traditional credit cards, prompting many big banks and payments providers to create their own iterations of BNPL.

Small business owner handing a purchase to a customer

Image Source: Getty Images

Afterpay is the global leader

Afterpay's business model is very similar to that of U.S.-based Affirm Holdings, in that it integrates with the online stores of its participating merchants. But where Affirm charges its customers interest, Afterpay instead charges the merchant a percentage fee based on transaction volume (its net transaction fee is about 2.2%).

It provides the option for consumers to check out with Afterpay, where their purchases are financed. It requires the money to be repaid in four interest-free installments over six weeks. If more time is taken, late fees apply -- a key but controversial source of revenue, catching the eye of Australian regulators last year.

The company is by far the global leader among pure-play BNPL providers -- of which there are now dozens -- but competition has led to new twists on the concept. For example, Zip is considered Afterpay's closest Australian competitor. That company introduced a digital "credit card," removing the need for integration with merchants and allowing consumers to shop anywhere. It prompted Afterpay to pivot and offer a similar product to its users.

Afterpay has sacrificed profitability as it scales its operations globally, but it's growing rapidly.


Fiscal 2021 (ended June 30)

Growth YOY

Underlying sales

$16.7 billion



$733 million


Total users

16.2 million


Data source: Company filings. YOY = year over year. Figures converted from Australian dollars to U.S. dollars as of June 30 (end of fiscal year). 

The U.S. now accounts for 49.5% of total underlying sales, making it Afterpay's largest single market. 

U.S.-Only Metrics

Fiscal 2021 (ended June 30)

Growth YOY

Underlying sales

$8.3 billion


Total users

10.5 million


Data source: Company filings. Figures converted from Australian dollars to U.S. dollars as of June 30 (end of fiscal year).

Most of the company's total merchant partners are still in the Australia and New Zealand market (over 64%), but it added 148% more in the U.S. during fiscal 2021. It's likely the company's focus is on users rather than merchants with consumer-focused products like the Afterpay Card. Put simply, Afterpay's future looks destined to be written in America. 

Square's big bet

Square's acquisition of the largest BNPL provider in the world should see it crush efforts from competitors like PayPal Holdings and Citigroup, which have launched their own BNPL products. The technology has just 2% penetration in the $10 trillion global online payments market, and the company realizes this deal comes with key opportunities for integration into its existing platforms. 

Square's CashApp has over 70 million annual active users, and it's going to introduce Afterpay to them in a move that could trigger an explosion of growth for the BNPL platform. It will also use Afterpay to attract new sellers to the Square merchant platform, as financing customer purchases tends to drive sales for businesses




Gross profit (TTM through June 30)

$3.7 billion

$506 million

Growth (TTM through June 30)



Two-Year CAGR (as of June 30)



Data source: Companies' investor presentation. CAGR = compound annual growth rate. 

Afterpay is significantly smaller than Square by market capitalization (about $28 billion to Square's $122 billion at Tuesday morning's prices), but it's growing much faster, and that should provide a boost to Square's financials in the short term. 

Square will pay $29 billion (42 times sales) in stock in this deal, with each Afterpay shareholder receiving 0.375 Square Class A share, with the option to pay for up to 1% of the transaction in cash. The two Afterpay founders will join Square and continue running the brand within its integrations with CashApp and Seller. And Afterpay will be given a seat on Square's board of directors when the deal closes -- expected in the first half of 2022.

Investor takeaways

Square is profitable, with trailing-12-month earnings per share of $1.14. But the stock trades at over 216 times that metric, which would normally be considered extremely expensive if not for the fact it's growing so rapidly. 

In the second quarter, the most recent to report results, the company generated $4.68 billion in revenue, over 143% more than the same period last year. In full-year 2022, analysts expect Square to deliver over $22 billion in revenue and $2.11 in EPS, which would nearly halve the current sky-high multiple (at today's share price). 

Since the acquisition of Afterpay is an all-stock transaction, the company won't need to take on any additional debt; plus, it means its cash reserves are untouched. While the two companies are expected to greatly complement each other, there's an underlying possibility that the partnership will blow away all expectations. Younger generations are flocking to BNPL in droves, and Square has tens of millions of customers it's ready to introduce to the revolutionary concept.