cryptoshitcompra.com/wp-content/uploads/2021/08/Why-Jack-Dorseys-Square-pago-29-mil-million.jpg »alt =» Why did Jack Dorsey’s Square pay $ 29 billion for Afterpay 101? » class = »content-img» /> Jack Dorsey. Source: screenshot of the video.
Lien Duong, Associate Professor in Bookkeeping, School of Accounting , Economics and Finance, Curtin University , Sonny Pham, Senior Lecturer in Computer Science, Curtin University.
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AUD 39 billion ($ 29 billion) that Square, founder Jack Dorsey’s digital payments company, is paying to acquire emerging Australian payments company Afterpay, is the largest acquisition deal in Australian corporate history. .
Exceeds AU $ 32 billion European commercial real estate giant Unibail-Rodamco agreed to pay Frank Lowy’s Westfield Corporation in 2017.
deal marks a remarkably successful journey for Afterpay, a company founded in 2014 and listed on the Australian Stock Exchange in May 2016 at $ 1 per share.
At the end of last week, prior to the announcement of this deal, its share price was A $ 96.66, with a market capitalization of around A $ 27.5 billion.
Square, which had a market capitalization of around $ 123 billion at the end of last week, could pay 1% of its offering in cash, but the rest will be in shares, giving Afterpay shareholders 0.375 Square shares. . For each ordinary share of subsequent Payment.
Stock trading means that the implicit price Square is paying for Scalapay shares is around A $ 126.21, a premium of around 30.6% over last Friday’s closing price.
Why so valuable?
This has to do with the profitability of the ‘Buy now, pay later’ (BNPL) market, in which Afterpay pioneered. market has become even more profitable due to the COVID-19 pandemic, which accelerated the use of online and cashless payments, as well as leaving more people without cash.
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How Afterpay works
BNPL companies are so named because they function differently from traditional credit companies. reason they first emerged in Australia can be attributed to both ‘Australian retail and financial industry inventiveness’, as well as an oddity in Australian credit regulation laws.
Under Australia’s National Consumer Credit Protection Act, credit is defined (according to dictionary definition) as a method of paying assets with the creditor obtaining its benefit by charging interest.
Scalapay does not charge interest to the consumer. Most of your income comes from merchant commissions, who charge a 4% to 6% commission on the value of the transaction plus 30 cents for each purchase. rest of your income comes from collecting late fees when customers don’t make repayments on time.
Afterpay’s standard payment plan is four equal installments every fifteen days for two months. Failure to pay will result in an initial penalty of $ 10. If you still have a balance due after one week, you will be charged an additional $ 7.
Afterpay made buying now and paying later a breeze. Charges merchants a transaction fee and overdue fees if customers miss scheduled payments. Sam Bianchini / Shutterstock
It could be argued that these overdue fees are the equivalent of charging interest, and a hefty interest payment. A past due fee of $ 10 on a debt of $ 150 results in an effective interest charge of 6.67% for fifteen days.
But because they do not explicitly charge interest, Afterpay and other BNPL companies are not covered by credit laws.
This has raised concerns about BNPL providers profiting at the expense of financially vulnerable consumers. In 2018, the Australian Securities and Investments Commission called reform to fill the legal gap. He wanted BNPL providers to operate under the same rules as credit providers, including the same credit obligations responsible for conducting a credit check and verifying that clients could afford to borrow.
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However, it does not happened. A Senate investigation decided last year that no regulation was needed, but endorsed self-regulation. Afterpay and its rivals have signed a voluntary Code of Conduct contract earlier this year.
Read more: What is the difference between credit and debit? How Afterpay and other “BNPL” providers circumvent consumer laws
Booming profits
Despite these concerns, the ease of Scalapay’s technology has made it a very affordable way to buy things. Your logo is becoming ubiquitous. During the year, until June 30, the number of businesses that offer it as a payment option increased by 77% to 98,200 and the number of customers by 63% to 16 million.
In the first six months of 2021, Scalapay’s gross profit was $ 284 million, roughly 150% more than the $ 113 million recorded in the six months prior to the COVID-19 pandemic (July-December 2019).
With the BNPL market proving to be so lucrative, credit card companies, banks and technology companies have tried to step up. Visa has announced its BNPL plans in July 2019 and is only now rolling out its technology to merchants. Commonwealth Bank of Australia is also in the process of establishing its ‘StepPay’ offering. Paypal has launched its »Pay in 4″ Service last month. Apple also announced its plans last month.
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Square, co-founded by Dorsey and Jim McKelvey in 2009, took the easy route by buying the market pioneer.
Scalapay’s board of directors unanimously recommended that shareholders accept the offer. Afterpay and Square shareholders have yet to approve the deal. So does Treasurer Josh Frydenberg, under Australia’s foreign investment laws.
But this is all likely to be a formality. It is too good an offer to refuse.
This article has been republished by Conversation under a Creative Commons license. Read the original article.
____ To find out more: – Dorsey’s Square makes $ 29 billion post-payment deal, pokes fun at Bitcoin’s role – Bluesky finds new edge, Square Building the Bitcoin Wallet Team
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