Square to acquire Afterpay for $29B

https://squareup.com/us/en/press/square-announces-plans-to-acquire-afterpay

by sanmak • 5 years ago

283 349 5 years ago

azemetre2• 5 years ago

Kinda amazed at how different the leadership is between Square and Twitter under Dorsey. You can tell which company he is spending most of his time with and which one is getting neglected.

scrollaway2• 5 years ago

You can?

... Which is which? Because I genuinely can't.

RichEO• 5 years ago

It’s Twitter

misiti37802• 5 years ago

How does Afterpay make money if they do not charge interest?

toomuchtodo2• 5 years ago

Merchant fee (same as paid by a merchant when accepting a CC) which subsidizes the zero percent financing payment plan to the consumer.

misiti37802• 5 years ago

thanks!

AussieWog936• 5 years ago

Just to expand upon what the parent said, their fee is significantly higher than the companies that just process credit cards (around 6% compared to the industry standard rate of 2.9%).

I believe they eat the loss when the customer defaults, though.

softveda2• 5 years ago

They are in a regulatory blackhole, in Australia merchant fees are tightly regulated, cannot be more than actual processing cost. Many companies here charge more to pay bills by credit card or shops have minimum amount before credit cads are accepted. Moreover since Afterpay technically doesn't give consumer credit they are not bound by national credit rules as well. They don't and can't do credit checks

unclekev• 5 years ago

Merchant Fees + Late payment fees on accounts is where most their money comes from.

neximo642• 5 years ago

A very generous merchant fee 2-3x what is usually charged. > 4%

treelovinhippie4• 5 years ago

~25% of their revenue comes from late fees to consumers. 75% from merchants.

They're your standard loan shark predator disguised with flashy marketing and bankrolled by VCs.

interesting224• 5 years ago

Given that:

- their late fees are capped - there is zero interest charge - they have a policy of never taking legal action to pursue payment - non-payments don't affect your credit rating

On what is your argument based? There is literally nothing in common.

ko3us• 5 years ago

Capital recycling: Here's how Afterpay earns its margin.

How Afterpay makes money

BNPL companies like Afterpay earns their revenue in two ways: Merchant fees from retailers: the company takes a percentage fee of every dollar that is transacted via its platform. This commission rate, referred to as “Afterpay Income” varies is between 3% and 6%, varying depending on the size of its is retail partners; and Late fees from consumers: the company charges late payment fees of $7-$10 per late payment.

Breaking down Afterpay income

Merchants pay Afterpay a commission, referred to as Afterpay Income. This commission ranges between 3% to 6%. The more volume you do with them, the lower the rate I gather. In FY20, the income as a percentage of underlying sales, or Gross Merchandise Value (GMV) transacted through the platform was 3.9%. This indicates that there is a portion of retail partners that pay less than 4% of fees to Afterpay. Hot Tip: If your retail business offers Afterpay and you’re paying more than 4%, then perhaps it’s time to get a price check.

There are costs of sales associated with earning Afterpay income.

Afterpay’s cost of sales include: - Provision for bad debts (customers that are at risk of not paying); - Other variable transaction costs (processing fees); and - Financing costs (cost of working capital).

After deducting these variable cost of sales, Afterpay’s gross profit was 2.25%, referred to as Net Transaction Margin (NTM).

In other words, for every $100 that you spend using Afterpay, the company collects $2.25 of gross profit.

Finance costs

Like most businesses, a constraint to Afterpay’s growth is working capital. Afterpay needs cash to fund the gap from when funds are paid to its retailers to when it eventually receives the cash from consumers in six weeks.

Let’s break this down. Say you buy a $1,000 pair of Yeezys via Afterpay. The retailer will get paid $940 upfront, being $1,000 less a 6% commission. On the same day, Afterpay collects its first installment from the consumer of $250. Afterpay is out of pocket by a total of $690. Aftepay will collect the remaining $750 from the consumer over six weeks.

Afterpay needs capital to fund this $690 gap. It does so by borrowing from several Tier 1 lenders: Goldman Sachs, CitiBank, Bank of New Zealand and NAB. The average interest rates on these facilities ranged from 1.65% to 3.2% in FY20.

How it really makes money: Capital recycling

So summing up, after starting with a 4% merchant fee, Afterpay’s Net Transaction Margin drops to a mere 2.25% after paying transaction fees, interest and bad debts.

Doesn’t sound that special, does it?

Well yeah, it doesn’t.

But here comes the big reveal that gets investors salivating about the BNPL business model.

It boils down to the company’s velocity of recycling capital.

Traditional banks make money by earning the difference of interest between what they charge to borrowers (mortgage holders), versus what they pay to depositors (savers). Most banks make a net interest margin of ~2% per annum.

But what the banks earn in a year, Afterpay makes in six weeks. Customers are required to repay Afterpay over 42 days (six weeks), and Afterpay makes the same amount of commission even if they decide to pay it earlier.

In fact, it’s better for Afterpay if customers pay off their debt faster, because it means that Afterpay can redeploy the capital faster.

To put this in practical terms, let’s assume that a consumer spends on average $100 per transaction via Afterpay.

If this consumer only uses Afterpay once per year, Afterpay makes $2.25 per year of transaction margin and a 2.25% Return on Capital (ROC) before operating expenses.

But if the consumer uses it 10 times per year, Afterpay makes $22.50 per year. The initial $100 of capital that Afterpay borrowed is redeployed every time a new transaction is made. The return on capital is now 22.50% because the same $100 is now generating $22.50 of annual net transaction dollars.

In its FY20 report, Afterpay reported that its longest cohort of users are transacting up to 25x per annum — which implies that Afterpay could be generating a whopping 56% of ROC per annum on its oldest users.

Source: Jason Andrew

treelovinhippie4• 5 years ago

Ok so Square has opted to engage in predatory practices. Noted.

junon2• 5 years ago

I'm completely out of the loop here but plan to integrate Stripe into a new product. Can you elaborate?

SV_BubbleTime2• 5 years ago

I think he’s saying that these big entrenched players immediately buy up any competition or threats.

Meaning this isn’t really any sort of free market, if you are so large you can absorb or destroy smaller entities ensuring that you will always be the leader in your market. And because governments have no teeth when it comes to monopolies or anti-competition this skates by world wide.

That was my read, could be wrong.

treelovinhippie4• 5 years ago

Afterpay is a buy now, pay later scheme. It's literally a loan shark service. 25% of their revenue comes from late fees.

"The Australian Securities and Investments Commission found one in five buy now, pay later users is missing payments, half of users aged between 18 to 29 cut back on essential items to make repayments, and more than 1.1 million transactions in 2019 incurred multiple missed payment fees.

It also warned 15 per cent of users, and half under 29, had taken out an additional loan to pay for the services, while 55 per cent of consumers paying late had used at least two different buy now, pay later providers in the past six months."

https://www.afr.com/companies/financial-services/one-in-five...

geofft• 5 years ago

Stripe or Square? Visually similar words and in similar lines of business but definitely different companies.

geoffpado• 5 years ago

Other people have replied to the predatory practices thing, but additionally I'm not sure if it's a misread, typo, etc., but Stripe != Square.

version_five4• 5 years ago

I see you have a few posts on this thread and are obviously not a fan. I had not heard of afterpay before this thread, but I checked them out and I agree they are a predatory lender. Some people obviously feel differently, but I don't see (other than a bit of nice branding) how they are different than Money Mart or Easy Home or anyone else that gives you money you don't have, but makes sure to collect it one way or another.

Like I said elsewhere, people should be free to make their own choices, but this is certainly not a business model to be applauded.

paxys4• 5 years ago

Does this also apply to Visa, Mastercard, Apple Pay? Giving out a loan is by itself not predatory. It's the interest rate and other collection practices which make it so. Afterpay looks to have basically the most consumer friendly terms in the industry right now, so I'm not sure what exactly classifies them as predatory?

chirau• 5 years ago

I have noticed that there isn't a lot of chatter on HN about Square. But on closer inspection it is a fascinating success story. They are building and cornering a whole ecosystem there. And their valuation is remarkable. Not just hype, but execution. Kudos to them.

Between them and Stripe, it's nice to have something in payments to admire and be excited about.

I remember a time when we had to deal directly with Authorize.net, wow that was a mess!

dangrossman2• 5 years ago

My merchant account is cheap (interchange plus 0.1% or so) and the gateway they set me up on is Authorize.net. Still using it after 17 years or so, although indirectly via Spreedly.

If you go to a craft show or popup market or anything like that, every vendor has a Square reader to take cards. They're super successful with "offline solopreneurs" -- the independent one-person small businesses.

One of my many side gigs is selling laser-cut wood stuff of all sorts, and I make a set of Square Reader docks that sell really well. I just made several this weekend.

https://www.etsy.com/shop/ligninandlight?section_id=26787311

ampdepolymerase• 5 years ago

How much are the delivery fees for this sort of products?

55555• 5 years ago

My merchant account is cheap (interchange plus 0.1% or so) and the gateway they set me up on is Authorize.net

It's crazy most people don't know you can get this. Seems like every popular merchant account provider is a bad deal in comparison.

For those curious, you get it from banks. Open a company account at a major conventional bank then ask them for a merchant account. The default they offer you is interchange + 0.2% or so. Many debit cards have an interchange rate of about 1%. When you pay 30 cents + 3% or 2.9% or whatever you're sortof being screwed.

neximo642• 5 years ago

Now square has access to basically a checkout page for a good proportion to the online web out there.

SV_BubbleTime2• 5 years ago

If anyone was following the news about PayPal working with ADL to stop wrong thinkers having accessing payments/receipts, erm “Fight Extremism” (great until your views are considered extreme, and if you don’t think that’s possible consider a talk with your 10 year ago self about vaccine passports or forced vaccination or trans athletes or border/immigration or canceling comedians or ending the filibuster, etc)… I don’t think I can support anyone having even remotely strong market dominance anywhere for payments. [0]

Maybe Stripe can just process payments, but who knows because “silence is violence” now. They did ban the Trump Store after the 11/6 fiasco [1] despite nothing on the store breaking any TOS or referencing the capital riot, just a broader “This guy is bad news!” condition they could/would/should have used at any time.

[0] https://thefederalist.com/2021/07/26/paypal-is-conspiring-wi...

[1] https://www.wsj.com/articles/stripe-stops-processing-payment...

__float• 5 years ago

This story is about Square, not Stripe.

chrisseaton5• 5 years ago

Anyone know the difference between Afterpay and Clearpay? Two brands for the same thing? Why?

interesting224• 5 years ago

Trademark issues in Europe

robin_reala• 5 years ago

That confused me as well (I’ve previously worked a little on Arvato’s AfterPay) but it was cleared up by https://www.smh.com.au/business/companies/afterpay-forced-to...

mberning3• 5 years ago

Horrible. People ought to know enough to not use these products in the first place, but people will use it anyway. They should be required to show the long term effects before being used, much like the gore packaging used on cigarettes in some places. What’s the financial equivalent of lung cancer or having a stoma?

chrisseaton5• 5 years ago

The long-term effects of a zero-interest loan? What are those?

version_five4• 5 years ago

The OP is onviously using hyperbole, but there are certainly long term effects from encouraging people to spend beyond their means. For example, it makes people's financial position more precarious: if your income is mostly committed to monthly payments, you are in more danger of getting into trouble from a layoff, illness, etc. If a big portion of society is in this position (and they are) this is a concern.

I think people should be allowed to make their own choices, but I don't believe it's harmless to promote living beyond one's means.

phist_mcgee4• 5 years ago

You sound like a BNPL marketer. The loan has late fees, the app is branded as a easy POS way to buy things with money you don't have. There is no credit check. You can sign up to a dozen of the services at once. It is credit, it has the same negative effects as credit.

BNPL is as bad for people as 20% apy credit cards are.

the__alchemist• 5 years ago

What do you mean by this?

pylon• 5 years ago

As a customer are there any downsides to using these BNPL platforms when I'm buying something? I generally never buy anything online that I can't afford to pay for it outright so I have never used them before.

benmanns• 5 years ago

You might miss out on some credit card rewards or protections (chargebacks, extended warranties, extended return periods, etc).

phist_mcgee4• 5 years ago

Trickily, BNPL is pushed as 'not credit', which I find deeply disingenuous. The product they push is utilised by compulsive spenders, or poorer people. These people have always used credit, much to their collective disadvantage. Branding it as 'like lay-by, free up your cashflow' is in my opinion a dangerous option for many people.

interesting224• 5 years ago

No, not really. I don't use it either. They do have late fees but even those are quite low and stop increasing once you hit a cap.

Gatsky2• 5 years ago

I generally never buy anything online that I can't afford to pay for it outright so I have never used them before.

They are designed to let people buy impulsively without annoying restrictions like not having enough money. Who would have though this was either an addressable market or a good idea.

I don't get why they are so popular either, or worth this much. They also don't have any moat - any payment provider can offer to do the same thing they do with less hassle for the customer (PayPal has started doing this for example). There are many direct competitors in addition (eg Zip).

pdog2• 5 years ago

Isn't that what a credit card is for? Or is it somehow different?

landemva• 5 years ago

The rent-to-own storefronts moved online.

izolate• 5 years ago

Yes. Sometimes a store will offer free returns when paying directly, but not when the item was bought through BNPL.

Pay it outright, if you can. It's usually the best way.

mcintyre19942• 5 years ago

The main one in the UK is that you lose Section 75 protection, which is what forces credit card companies to protect your purchases. The obvious others are if you buy something you wouldn't buy without BNPL (their business model is charging retailers on the basis that people in aggregate will), or you miss payments and get late charges/a worse credit score.

marcins• 5 years ago

I might have misunderstood, but when I looked into this a while back the main downside is the loan amount shows up on your credit report. Even after you pay it off you now have this “credit” with the provider. This could affect, for example, a future mortgage application.

treelovinhippie4• 5 years ago

Square is buying a loan shark service.

https://www.afr.com/companies/financial-services/one-in-five...

AussieWog936• 5 years ago

Are Afterpay really to blame for this? Credit cards have been around since the 80s and are far more predatory. Pawnbrokers have been around for centuries.

Even without debt, so many people have an impulse to spend as much as they can and put themselves in a financially precarious situation where one emergency bowls them over.

I'm not saying Afterpay are ethical, but I'm sure you'd find a similar amount of people foregoing necessities to make dumb impulse purchases regardless of payment method.

Andys• 5 years ago

The problem is their target market is people who don't have (or can't get) a credit card.

If you already have a credit card, whats the point of Afterpay?

version_five4• 5 years ago

From "Margin Call (2011)" - context is a subprime investment banker explaining how he justifies doing what he does:

People wanna live like this in their cars and big fuckin' houses they can't even pay for, then you're necessary. The only reason that they all get to continue living like kings is cause we got our fingers on the scales in their favor. I take my hand off and then the whole world gets really fuckin' fair really fuckin' quickly and nobody actually wants that. They say they do but they don't. They want what we have to give them but they also wanna, you know, play innocent and pretend they have no idea where it came from.

This is fulfilling a demand, it's one I don't agree with either, and think we'd be better off without, but people are asking for it. At least it's a legit company doing it and not a mobster or money launderer.

Scoundreller• 5 years ago

Don't beat yourself too much about this stuff, all right? Some people like driving the long way home.

extr• 5 years ago

Yes, these new POS financing companies are not good. I briefly worked for one before fully understanding what kind of businesses they are and how they make their money. They may put a pretty face on things but their financials look nothing like a "regular" startup, it's rebranded high APR loans.

interesting224• 5 years ago

Very sad to see this. I seriously expected Afterpay to become Australia's first $1t tech company.

sydthrowaway• 5 years ago

Uh a payments company having Apple level value??

b3n• 5 years ago

Apple has a vastly bigger market cap than $1t.

madeofpalk• 5 years ago

Is Afterpay a tech company in a way that any other bank, or Qantas, isn't a tech company?

hn_throwaway_99• 5 years ago

I've just come to accept that I'll never understand corporate finance. Based on the data I could find, this works out to a sales price of about 76 times revenue for Afterpay. Even for a fast growing company, how can they ever grow into that valuation? Of course, it's an all stock deal, so perhaps it's better to just consider what percentage of Square they're giving to Afterpay stockholders, but I still just can't wrap my head around these prices given the revenue numbers.

chrisseaton5• 5 years ago

Acquisitions are priced on speculated future potential after acquisition, and thinking about the potential cost of acquisition by someone else, not revenue today.

version_five4• 5 years ago

We're in a gigantic bubble

babesh2• 5 years ago

There have been tens of trillions of dollars and other currencies created from thin air the last year and a half. And more is being created currently. This isn’t just the US government. It’s basically all governments in the world.

EDIT:

Fed has been purchasing 120b of assets per month https://cheddar.com/media/federal-reserve-to-keep-up-asset-p...

Federal government has spent at least 3.5 trillion on COVID-19.

EDIT2: More like 8.6 trillion. 2 trillion added by the bills passed early 2021.

https://datalab.usaspending.gov/federal-covid-funding/

That is the US. Then add all the other countries in the world.

That much extra money chasing the same amount of the goods and services, investments, etc…

So either we are in a bubble or currency has been devalued.

EDIT3: Fed spending is about 25k per person in the US.

zz865• 5 years ago

You're right it doesn't make sense, this isn't normal corporate finance. Its dotcom funny money.

makeitdouble• 5 years ago

Hopefully they don’t intend to let Afterpay’s market stagnate in complete isolation, otherwise acquiring would make less sense.

If they can take Afterpay’s product and scale it to their customer base and beyond, that should be worth it.

TuringNYC• 5 years ago

Other potential reasons for high multiple:

- Acquirer sees huge growth and thus a reasonable PEG ratio

- Acquirer wants some key market they have been unable to win themselves

- Acquirer wants some key technology, patent, or engineering know-how

- Acquirer wants team that has achieved something impressive to apply to acquiring company's own product

- Acquirer wants to absorb client base with higher growth than they have internally

- Acquirer has M&A execs who cant get promoted without deals

- Acquirer has inflated stock, so the cost is only relative to this inflated stock while the stock remains inflated

kevindong• 5 years ago

The acquisition is entirely in stock, so very little actual cash is changing hands.

According to the Afterpay investor relations site, Afterpay's gross revenue for FY21 (ended June 30, 2021), assuming constant currency exchanges rates, was $978 million AUD [0]. If you subtract out the first half of FY21's revenue ($385.2 million AUD) [1], we arrive at an implied revenue of $592.8 million AUD for the second half of FY21. Convert that to USD (USD$1 = AUD$1.36) and we arrive at an annualized revenue run rate of ~$871 million USD.

Which implies an acquisition price of ~33.3x gross revenue. Which is certainly a lot better than 76x ratio. Moreover, that growth rate is ~53.9% ($592.8 million / $385.2 million) over the prior half-year which is truly astounding growth.

[0]: On https://corporate.afterpay.com/investors/asx-announcements, go to 'ASX Announcements', then find the 'FY21 trading update' dated 2 Aug 2021, $978 million is on the second data column of the second table on the first page.

[1]: On https://corporate.afterpay.com/investors/asx-announcements, go to 'ASX Announcements', then find the 'H1 FY21 Results Announcement' dated 25 Feb 2021, $385.2 million is on the fourth data row of the first page's table.

mustardo• 5 years ago

The profit margin per "Revenue" dollar is so small for a payment processor it always seemed like a strange metric to value a payments company on for me, as they are essentially just a middle man for this "Revenue" taking it from the customer and giving it to the merchant. Afterpay does typically have higher merchant fees than a regular CC gateway tho

mikeryan• 5 years ago

Even in the Release I was shaking my head. They have 100,000 merchants that seems tiny? I could understand buying market share but at some point don’t you think Someone could tell Jack “hey we can probably build this feature for a few bucks less than $1B. Might take a year or so but we can save a few bucks maybe”

I mean at some point don’t you have t

humanlion872• 5 years ago

I don't think building the feature/product is the challenge here. Signing up all those merchants and convincing them to on-board is going to be time and resource intensive. That is what they are buying.

jtsiskin• 5 years ago

“Shop now. Pay over 6 weeks.”

How is this technically different from a credit card? Just a longer timer period?

dangrossman2• 5 years ago

No interest, no credit check, late fees are capped, and it won't ever ding your interest rate or credit history if you do miss a payment.

mcintyre19942• 5 years ago

At least in the UK they do reserve the right to file missed/late payments with credit reference agencies FWIW.

sillysaurusx2• 5 years ago

I got hopeful when I read "Scheme Implementation," but unfortunately lisp for financial services doesn't seem to be the goal. Maybe someday.

jmeister• 5 years ago

Brazil’s Nubank is all-in on clojure:

https://www.finextra.com/newsarticle/36297/nubank-buys-firm-...

Sweden’s Klarna seems to be using Clojure along with other FP languages:

https://news.ycombinator.com/item?id=23379264

sillysaurusx2• 5 years ago

This is awesome! Thank you for pointing out some cool finance-related companies that use lisp.

pdog2• 5 years ago

$29B is a pretty significant, even for an all-stock acquisition and a company of Square's size.

It would be interesting to see the motivation for this beyond a "shared mission" or "economic empowerment."

BugsJustFindMe• 5 years ago

Every time I see one of these announcements, the valuations go up and up and up and up. I remember not long ago being wowed by a 1B acquisition. That was called a unicorn because of how incredible it was. And now we're at 29B. Is this just because money is all a joke?

vmception3• 5 years ago

Kind of? If you follow monetary policy circles, you would know that we are only close to the predicted level of fantastic market distortions that should be expected.

It is fantastic to see it play out, such as valuations much larger than before, as well as the unexpected areas of speculation and shifts in market tolerances for worse deals.

But we aren't even done yet! And this comes with a pretty clear agreement on the limitations of monetary policy, like we know massive central bank balance sheet increases don't accomplish their [stated] goals well. But we also expect central bank balance sheets to increase by further distorting the market. When central banks purchase things, whoever they bought it from now has money that didn't exist before the transaction. This money doesn't "trickle down" into the economy, instead it more so pools with these people that are active in the capital markets, and they are trying to figure out how to make more of that money faster than the central bank buys and creates more. So the only way to do that is to attempt greater and greater deals. Because there is nothing else to buy - the central bank already bought the "good investments" (bundles of mortgages, treasuries, investment grade corporate bonds, even some junk bonds) and is also looking for more just like you are! So now you have to take greater risks, maybe this $29 Billion deal that the central bank won't try to get in on!

The conundrum is that now the capital markets are expecting the central bank to buy everything, especially the dips. (most central banks don't buy stocks, but when they buy fairly illiquid bonds from people those people often buy stocks. in US a lot of the stimulus money came directly from the central bank after Congress modified its charter to give currency directly to people in exchange for nothing, and the recipients also bought stocks. the same sentiment is distributed in all socioeconomic classes even the top 0.01%.). So if the central bank gives a hint at reducing purchases (called "tapering"), the markets crash, and the central bank is strongly advised to continue!

The stated purpose is to get people to invest in "main street", instead of just the same small collection of assets. Turns out, it doesn't matter and nobody wants to invest in random entrepreneurs. The market is signaling that it would rather pay to not invest in randoms (in many parts of the world, government bonds have a negative yield, which means people are paying to own a bond while also further losing on inflation). So if you do have access to the capital markets due to your pedigree or network or net worth, the stuff you sell - your company's shares that you typed up on a sheet of paper, or whatever - will have a much higher valuation because other people have nothing else [eligible] to buy and need to put their money somewhere!

The US is the strongest hold out on negative interest rates, and is the largest market too, so the anticipation of the "season finale" is that the US gets to that territory as well, and then we really get to see some fireworks in the market as it is a major psychology barrier as well. Watch the 2 year and the 10 year treasury rates, as they are seen as having the most liquidity and trading activity.

https://www.treasury.gov/resource-center/data-chart-center/i...

As you can see they are really close to 0% right now, for a prolongued period of time. Getting to this negative stage requires SOOOOooooo much infathomable amounts of money, hoarding government bonds. But the central bank is the main purchaser of these bonds, from both the treasury and private owners on the secondary market, as they buy they push the yields closer to zero. (bond price increase = lowers yield)

fun times ahead! expect greater valuations and quick!

jollybean• 5 years ago

+1. This is the real comment about the situation, because the valuation is so 'ridiculous', it almost makes the nature of the business activity secondary.

For non-financial folks, dust off the little equation you may have learned in high school, where you value something that goes out forever, but where the rate of growth is higher than that of inflation and the risk-free cost of capital. It goes to infinity. So as interest rates go down, valuations grow. But as interest rates really get low ... the valuations vault into the stratosphere.

Only in a weird universe can we really expect these companies to grow at those rates for very long periods of time ahead of absolutely everything else without much risk.

So the discussion is really about markets, less so local types of consumer payments.

rossmohax• 5 years ago

What would you recommend to read/watch to understand better this kind of things?

pcurve2• 5 years ago

That's part of it, but it's concentrated around certain sectors (technology and startups) There is x5 ~ x10 premium being put on these companies compared to others.

Valuations in other sectors are still somewhat reasonable.

muzani• 5 years ago

Yeah, I think the "unicorn" bar needs to be pushed up to $10B at least, because of inflation. It's very rare though, but fintech seems to hit it frequently.

Perhaps finance people have less money raising money. Or perhaps people are more willing to pay for things that save/make money.

paxys4• 5 years ago

Back when 1B acquisitions were considered incredible most of the world did not know what the internet was. If the size of the pie grows 30X the amount of money in it will as well.

throwawayzRUU6f• 5 years ago

Just several years ago, Facebook IPO-ed at ~$90B valuation, before sliding all the way down to ~$45B. Facebook was already a giant global corporation with close to a billion active users, nearly all of them from western countries.

AfterPay's valuation puts it at two thirds of mid-2012 Facebook. Up until now, I've never heard of them

JohnJamesRambo2• 5 years ago

Yes money is all a joke right now.

https://fred.stlouisfed.org/series/M1SL

Toine• 5 years ago

Is that the amount of cash circulating right now ? That is terrifying...

osrec• 5 years ago

Is that massive jump covid related?

jl6• 5 years ago

Can someone explain why x4’ing the money supply hasn’t ÷4’d the value of the dollar? Yet?

fungizid• 5 years ago

The steep increase at the end mostly does not reflect a change in economic fundamentals but rather banks relabeling savings accounts as transaction accounts in response to regulatory changes. If you look at M2 instead of M1, the increase disappears.

More info: https://fredblog.stlouisfed.org/2021/05/savings-are-now-more...

(Edit: Updated link to a more recent blog post)

m12k• 5 years ago

The market value of a company or person is determined by the market value of whatever they're shoveling around every day. Shoveling around software is valuable, but shoveling around money even more so. It just doesn't get more pure than that - it's literally the thing we use to measure the value of everything else.

shoto_io3• 5 years ago

Facebook acquired Instagram for 1bn. Ridiculous by today's standards.

mrtksn• 5 years ago

I remember the jokes about how FB purchased a photo filter app and how easy it was to make photo effects. Sometimes it feels like techies not always get what is valuable and what is not as much.

TheAlchemist• 5 years ago

Notice that it’s all stock - no real money is changing hands here.

All assets are at all time highs - bubble levels for most. Hence those « valuations » - but if history repeats itself, things can change quickly.

papito• 5 years ago

Dogecoin is literally a joke, and is promoted by some billionaires, who are allegedly smart.

tigerBL00D• 5 years ago

Lack of regulation means that there is no penalty for trading on non-public (insider) information or for stock manipulation. Lack of regulation is what everyone wants, right? Except regulation is there to prevent all sorts of fraud that ultimately leaves someone's granny holding the bag. The said billionaires are not so dumb. They know what they can get away with and their close friends may know what they're going to tweet before they do it.

skeeter2020• 5 years ago

if you've got one of these frothy valuations and can find another company that will take an all-stock deal you're basically buying a company that hopefully has some real assets underneath all the foam, but if not you're paying with waht is essentially self-minted fiat currency. In the meantime you better believe the insiders are quietly converting to something more concrete.

_yoqn• 5 years ago

I don't like Jack Dorsey.

shell0x5• 5 years ago

As a foreigner in Australia, I can't help but to think that Australians really don't know how to handle finances and are too irresponsible to use a credit card, so Afterpay and Zip stepped in.

Maybe it's because I grew up in Europe, but "Don't buy it if you can't afford it" has served me well. The majority of people I know just use credit cards for the perks but never miss a full payment.

robertwt73• 5 years ago

Actually, the biggest afterpay's market is in US.

shell0x5• 5 years ago

Oh wow, I didn't know that :)

siquick2• 5 years ago

I’ve lived in Australia for 10 years and still cannot believe how flippant people here seem to about getting into debt. Tens of thousands of dollars of credit card debt, a mortgage covering 60% of a salary, and a leased car seem to be fairly standard for a lot of my peers. It feels like they’re all 3 missed months of salary away from having absolutely nothing. Obviously all anecdotal but still astounding and probably not too uncommon here in Sydney.

catmanjan• 5 years ago

Other than mortgage (and HECS) nobody I know uses debt - Australians love second hand cars

megablast• 5 years ago

Compared to what?? Canada?? The us?? Uk???

pcurve2• 5 years ago

Sounds 100% like America. :-/

jeeeb4• 5 years ago

The flip side of this is that:

1. As long as your LVR isn’t too high your interest payments on a home loan will probably come in well below what renting an equivalent house would cost. Further rent will generally rise over time with inflation, whereas your interest will decrease to zero over time as you pay down the loan.

2. If you’ve got a home loan with a 100% offset account (very, very common in Australia) then a credit card makes financial sense. I purchase everything on credit and pay the full balance each month. I pay no interest, earn points and this maximises the amount of money in my offset account at any one time.

3. Depending on your usage and tax situation a noveated lease (car lease) can make good financial sense.

Clewza3133• 5 years ago

Australia has gone 20+ years without a recession, meaning many people have grown up without ever seeing anything except full employment and house prices going up up up. It's thus been a "safe bet" to leverage yourself up to your eyeballs to get on that "property ladder", and while many (including myself) thought this would finally pop last year with COVID, nope, after the briefest hiccup the property market has gone even more nuts this year.

jokethrowaway2• 5 years ago

That's likely a combination of extra money being printed, maybe people doing more remotes and looking for better houses, government schemes to prop the house prices up (eg. by slashing taxes on property).

There is still time for a pop once governments decide things are normal again after covid.

danielmarkbruce2• 5 years ago

If you look at interest rates from 1990 to now, and average household debt, it's easy to see why the economy has been up up up up. People have been spending way more money than they make for 30 years in Australia. That will make any economy boom.

The difficult thing is... when does it stop? The above could have been said 10 years ago, just replace the 3 with a 2. Should it have stopped then? Now? In 10 more years?

ttam• 5 years ago

Ironically, Klarna, a Swedish-founded company, is pretty big in the BNPL market

according to https://www.marketwatch.com/story/the-buy-now-pay-later-wave...

"In Sweden, home to BNPL provider Klarna, installments accounted for 23% of e-commerce transactions last year."

shell0x5• 5 years ago

Sorry, I should have said Germany instead of Europe since the European market is pretty diverse.

The German word for debt is schuld(Schulden), which has the same meaning as guilt and is associated with something bad.

danpalmer2• 5 years ago

Klarna is huge in the UK too.

I'm inclined to believe another commenter who suggested that millennials and younger don't really like credit cards, and this is a different way to get a similar thing – better cash flow.

daniel-grigg• 5 years ago

Being responsible is a tough call give that institutions in Australia charge enormous interest rates on credit cards, typically 20%+. I find it staggering that they can get away with it actually. Regardless, many (less ‘responsible’) consumers get burnt by this and spend years paying down debts, so I’m not surprised these BNPL players have seen such success. Also they’ve done well appealing with younger consumers. How though I’m not sure exactly, is it a mix of attributes like mobile first product and the simplicity of accessing credit compared to traditional banks or is there something more overarching?

humanlion872• 5 years ago

institutions in Australia charge enormous interest rates on credit cards, typically 20%+.

I think that is the case as well in the US. Credit card interest rates are atrociously high. Which makes it difficult for people who get caught in the CC debt-loop to get out.

dannyw4• 5 years ago

For the first couple years of operation afterpay had no credit checks and no identity checks.

moneywoes• 5 years ago

Why couldn't they roll out their own competitior? Wouldn't that be a lot cheaper? I guess much more difficult to expand in the Aus market?

notatoad• 5 years ago

definitely cheaper to build the tech, but possibly more expensive by the time they've convinced all the stores include a "pay later with square" button. as always with these things, they're buying the market not the product.

paxys4• 5 years ago

Easy for them to build something technically equivalent, impossible to guarantee that it will get the same usage. There's a reason why companies like Google, Amazon, Apple do hundreds of acquisitions every year despite having enough money and talent to build it all on their own.

robertwt73• 5 years ago

I guess this is one of the move by Afterpay higher up to fight the competition after knowing Apple and Paypal going into BNPL game as well

xyst• 5 years ago

Like the payment networks, payment gateways will soon be dominated by a few big players: Stripe, Square

I really wish digital currency (ETH, BTC) would take off in the main stream world. The amount of silent middlemen involved in paying a merchant with a credit/debit card is nauseating to say the least.

toomuchtodo2• 5 years ago

https://www.pymnts.com/news/faster-payments/2021/five-banks-...

https://corpgov.law.harvard.edu/2020/08/31/fednow-the-federa...

granzymes• 5 years ago

There is room for far more than 2 large players.

https://2c2p.com/

https://adyen.com/

https://checkout.com/

https://braintreepayments.com/

jordemort• 5 years ago

How many installments are they splitting paying the acquisition over?

geekpowa2• 5 years ago

Afterpay's business model relies on high merchant fees which merchants, under their merchant agreement, are not allowed to pass onto their customers. So from customers point of view, afterpay often appears to be cheaper than other payment channels such as credit card / paypal.

Afterpay roll into a new merchant, cannibalise existing payment systems and at leat for the low margin merchants I work with, who are not savvy enough to look at their own sales data, their business becomes less profitable.

Their whole business model is deeply unethical IMO, harms merchants and harms customers who do not use Afterpay as merchants have to amortize cost of business across all their customers. The Australian regulator dropper the ball last year when considering legislation to align Afterpay with credit card instruments on this issue. Eventually regulators will realise this is harmful behaviour and align things correctly.

judge20202• 5 years ago

which merchants, under their merchant agreement, are not allowed to pass onto their customers.

Is this audited by Afterpay perhaps? A company might just increase prices due to quarterly losses and not specifically because of this fee, even if it does contribute to a large amount of margin loss.

geekpowa2• 5 years ago

Merchants are not allowed to add a surcharge line item for using Afterpay. Instead they have to increase base pricing across the board to cover their increased costs. Afterpay are quite happy for merchants to do this, what they don't like, and what they actively police, is merchants adding a line item passing Afterpay costs onto the consumer.

The macroeconomic impact is potentially enormous. Your mission is to capture an entire generation of consumers (millennials) to use your payment mechanism, and embedded in that is a hidden cost which is comparable to consumer VAT (called GST in Australia) that the sovereign nation also levies. Eventually regulators will take notice of this massive some of money.

A comment I once read of HN as while back resonates deeply with me, that is how broken and unsolved the problem of paying for things electronically remains, in terms of costs, reliability, security and ease of access. Inspite of all the incredible transformation that has occurred over the past 30 years. You think about all the money that moves around for electronic payments, in an ideal world, the net levy should be a fraction of a %, not the 1.5%-3.0% that is charged by credit cards or the 6-8% that BNPL charge.

anomaly_• 5 years ago

It means that can't price discriminate specifically against Afterpay as a payment form. The merchant is free to set prices to whatever they want (as OP notes: the cost of the expensive Afterpay service will be borne by all customers), but Afterpay can't cost the customer more.

trissylegs• 5 years ago

I worked on some of Spotlight's rollout of Zip. I can see why they would prefer that. Spotlight go to a lot of effort to make sure every expense is accounted for. Also given their enthusiasm for it they definitely negotiated a good deal for it. (interest rates on Zip can get higher than most CC's, its only worth it if you pay off in the interest free period).

jijji• 5 years ago

Jack is banking on the low-wages and IQ of the majority of CashApp users

RSZC• 5 years ago

Afterpay has been a godsend for my girlfriend's (brick-and-mortar) business, which is in niche luxury items (keeping it vague).

Customers love using Afterpay, they search on Afterpay for products they want, and are redirected to her store. Online sales went from being essentially no part of her business to being 75% of her sales, and are probably the only reason her business survived the pandemic.

She has no problem with the fact that she needs to pay commission fees to Afterpay - it's a tiny fraction of the (unprofitable) amount that she would have to spend on advertising to achieve the same amount of sales.

robertwt73• 5 years ago

Actually the fee is not far higher than Amex. Depends on the business, it can be a blessing or a curse.

ThePadawan• 5 years ago

Pitching in from Switzerland - Amex is the one card issuer that is constantly going through the cycle of (being delisted from stores because they're fees are too high) => (Customers stop using Amex) => (Amex dropping their fees a tiny bit) => (Stores relist Amex) => (Amex raise their fees).

So "fees not far higher than Amex" sound really quite terrible.

askvictor• 5 years ago

I would also presume they're harvesting data on how you spend your money, so it can later be sold or used for other targeting. I haven't looked into this in any depth, but IIRC credit cards are not allowed to do this, but other services aren't held to the same standards.

mrmicemice• 5 years ago

I definitely see the overspending argument, but BNPL is actually way better than the alternatives in the current market. Credit card companies make an overwhelming majority of their revenue (up to 90%) from consumer penalties, while Afterpay makes the majority from merchants. It's a fundamentally different business model and lines up the incentives with consumers, where as CC companies want actively look to abuse people with poor credit.

IMO we all have engrained in our brains the horror of the credit card death spiral and it's warping our perception of any innovation in the space of consumer credit. I think we will see a bnpl takeover of traditional credit and generally healthier consumer finances.

Khaine2• 5 years ago

In Australia millennials, are allergic to credit cards. Credit card usage in that demographic is really low. Instead they prefer BNPL services as a credit mechanism. Banks have also responded and offer credit cards that don’t act like normal credit cards[1]

[1] https://www.commbank.com.au/credit-cards/commbank-neo.html

ZephyrBlu4• 5 years ago

I'm an early 20s Kiwi zoomer, so somewhat similar demographic.

I don't have a credit card and see no point in it. I use a debit card for everything. I don't think most of my friends have credit cards either, but maybe they do and I don't notice.

xenihn• 5 years ago

I've received roughly $3000 in rewards from my credit card usage over the past six years. Not a life-changing amount, but not completely insignificant, either. I think the biggest thing that I've lost is data privacy, but I would think that debit cards incur the same cost. I've never used any of the benefits like extra insurance/warranty, but it's nice to know they exist.

Chargebacks on debit cards are also much more painful than on credit.

J253• 5 years ago

I don’t have a credit card and see no point in it.

If you use a credit card like a debit card (pay it off in full every month) it can be rewarding depending on the card. I make $75-$100 cash back every month on my credit card.

paxys4• 5 years ago

This is obviously country specific and I don't know anything about the banking/payment environment in NZ, but here in the US credit cards offer a ton of benefit to consumers, so much so that it's almost always stupid to not use one.

hnick3• 5 years ago

Insurance, points, cashback, chargebacks. It's also a one month interest free float of your funds if you pay in full each month, meaning you earn some interest.

I know some debit cards are getting closer to credit cards in these areas but at least when I first got one, they were just plastic cash. You spend it you lose it, the bank won't support you with clawing it back.

shell0x5• 5 years ago

When I lived in Singapore, I got an American Express cashback card with 3% cashback on the first $5000 and 1.5% unlimited cashback for everything > $5000. They waived the annual fee and there was no minimum spend.

Another card(the annual fee got waived too) gave me free access to the airport lounge in Dubai, which was great, because I could get a free meal, free drinks, and take a shower during my layover.

Accacin• 5 years ago

I'm in the UK, and use one (IMO) sensibly. If there's a larger purchase I'll often find a 0% credit card and use that, then pay back. I only do this for stuff I could afford to pay back immediately if required.

Secondly, I'm not sure outside the UK, but we have something called Section 75, if I buy something and spend just £1 on a credit card, they are jointly liable for compensating me if something happens. If I'm buying a car, or large purchase I'll often pay £100 on a credit card just for the extra protection.

sleepyhead2• 5 years ago

Using a debit card online is not wise. If there is an issue you could end up with an empty bank account temporarily. Much better to be able to deal with such issues when you get an invoice at the end of the month.

thiscatis• 5 years ago

And the merchant get fleeced even more

gonzo41• 5 years ago

Interesting product from CBA. Doesn't afterpay act more like a loan? From looking at this it looks like CBA is trying to get people to splash their money and manage the payback themselves. Those management fee's are also based on the idea you can get the card paid off in the month (CBA also use a rolling bill day. so they have a 30 day month and a 25 day payment period for that month. And those details are pretty opaque to newbies with cards. ).

You're effectively paying a somewhat high interest rate. From the looks of it CBA's low interest card would be comparable or cheaper if you were young and held a bit of rolling debt. And right now they have 15 months interest free on their 'low' rate card.

I think the difference that's better for afterpay customers is being able to have your purchase chunked into installments, effectively making it more like lay by.

Also, cba should have made it black so it didn't look you were holding a learners plate credit card.

Our Australian banks are lazy.

Khaine2• 5 years ago

Black is reserved for their premium card. NAB have a similar product https://www.nab.com.au/personal/credit-cards/nab-straightup-...

Yes the chunking into 4 payments, is the primary benefit of BNPL. It allows you to buy something significant (i.e. a laptop) and spread the payments over time.

The downside is its very easy to overspend and get stuck in a debt spiral

danpalmer2• 5 years ago

Doesn't afterpay act more like a loan?

Yep. Buy-now-pay-later services are just short term loan providers. Part of what they're selling to merchants is the fact they are regulated as lenders. We use Klarna in the UK to offer BNPL for exactly this reason, even though we could likely offer it ourselves.

pjerem• 5 years ago

Maybe I’m wrong but I have the feeling that credit cards as a norm is really just an American thing. In Europe where I live, I know nobody who buys anything with a credit card or barely if there is a 0% rate promotion. Credit cards do exists here but they are the card some shop gave you for whatever reason that you’d better never use.

What is interesting is that we use the term « credit card » to speak about our debit cards so I needed a long time to acknowledge that in America, Credit cards really meant that you paid your coffee with a real credit and not with your money.

sleepyhead2• 5 years ago

In Europe where I live, I know nobody who buys anything with a credit card or barely if there is a 0% rate promotion.

Do you live in Germany? Here in Norway credit cards are quite common for various reasons (safer to use online, pay later, bonus points).

Semaphor2• 5 years ago

I use one in Germany, but only for the cashback and other promotions, I pay 100% off every month (automatically).

aeyes• 5 years ago

In Europe where I live, I know nobody who buys anything with a credit card

Renting a car or making a hotel reservation without a credit card can be quite painful, even in Europe.

With a credit card the deposit is held on your card but the money never moves, with debit the money is gone from your account.

omniscient_oce3• 5 years ago

Myself and most people I know (early twenties) use what the banks give by default which is a "Debit Mastercard/Visa" which lets you shop online like a credit card, perform chargebacks, or pay in-store, but the money just comes out of your savings account like a debit card - not on credit (they get declined if your account is empty too AFAIK but haven't tested it ;P). Are these common overseas? I rarely see reference to it on here or Reddit which is presumably predominantly people from the US or Europe.

sprkwd• 5 years ago

This is very common in the UK.

Semaphor2• 5 years ago

Those are what the vast majority of people in Germany use (mainly our own girocard network, but MC/Visa debit are big as well)

lumost• 5 years ago

Uncommon in the US as most major credit cards give you "rewards" for using them which amount to 1-5% off every purchase.

Debit cards are used almost exclusively when credit cards are unavailable.

bruce_one• 5 years ago

they get declined if your account is empty too AFAIK but haven't tested it ;P

Not always, at least some banks will allow you to go into overdraft and then charge a fee (e.g. $15 for Commbank) - so it's worth being cautious about running out.

I remember miscalculating and going into overdraft by a very small amount (e.g. a dollar or two) and then being slugged the overdraft fee - I would've much preferred the transaction to be declined, but that isn't/wasn't the default behaviour.

For example: https://www.commbank.com.au/support.banking.explain-account-... -> `CommBank may allow you to overdraw transaction accounts for the following payment types... Spend using your linked CommBank card`

(It used to be enabled by default with Commbank, not sure if that's still the case; but I'd kinda guess "yes"...)

pjg2• 5 years ago

Seems like a simple value proposition here: BNPL is growing like crazy. Square doesn't have a strong product in BNPL space. Add to that it will get a presence in AUS/NZ and it becomes a good value to Square expanding product and global footprint. Paying about 20-25% of it's market cap to acquire a company at appx 20X multiple of it's revenue with a growth rate of 1X. Seems like a fair deal in today's hot market. Is there anything else to it ?

andymoe• 5 years ago

Interesting that square is making this kind of large purchase. I’ve not been following them too closely but what I have noticed recently is a ton of local (SF) merchants switching from square to Toast.

indigodaddy• 5 years ago

Does Square have anywhere near this kind of cash or stock value, for a 29B acquisition? I just don’t really get this stuff..

leodriesch• 5 years ago

They seem to have a market cap of 112B, so 29B seems like a big chunk. But I'm not an expert in this finance stuff.

kart232• 5 years ago

I've seen the afterpay button when shopping online. Hate to say it, but this is absolutely taking advantage of people with poor spending & saving habits. I see it mostly at overpriced/luxury/hype online stores, where the desire to own a product doesn't come from a place of need, but from society & marketing. I buy some of this stuff, so I'm not hating on that. But some people are truly addicted to shopping, and enabling that is morally wrong.

greenbeans1991• 5 years ago

How is it different than credit cards?

kart232• 5 years ago

You can get afterpay without having credit. You can get afterpay even if you owe $7k on your maxed-out credit cards. Bank of America doesn't have a shiny button turning those $200 dollar pants into '4 payments of $50' on a website.

It's like asking 'hows flavored vape juice different from cigarettes'. Both bad, but they appeal to different markets and one takes advantage in a more sinister manner. No doubt there are people that can use it in a healthy manner, but overall it's a net negative. Credit cards can be just as predatory in my view though.

equinoxmist2• 5 years ago

Just easier. I use credit cards, but also have a Klarna account. If the shop uses Klarna, I will often use that because it is to well integrated, and then pay off Klarna with my CC, which in turn is paid a month later. Essentially I don't pay for something for over 2 months.

say_it_as_it_is• 5 years ago

Curious about the Scheme Implementation Deed. What are the benefits of this arrangement?

fb03• 5 years ago

For a brief moment, I thought: "Damn, what a game company wants to do absorbing a payment company?' ... heh it was the other Square.

qeternity• 5 years ago

Given the relative sizes of the businesses and the all stock transaction, this should really be termed a merger instead of an acquisition.

nikolay• 5 years ago

This is crazy - 10% of Mastercard for a lame service! The existence and success of Afterpay and Quadpay (now Zip) prove one thing - people don't have money enough cash or credit and this is sad!

Square to acquire Afterpay for $29B

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