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By Julia Glum
August 2, 2021
Close up of the Square logo on a smartphone
Shutterstock

It may be a mouthful, but it's actually legit financial news: Square, which owns Cash App, is buying Afterpay, so soon you can pay for your Afterpay buys via Cash App.

This is a big development for people on both sides of the cash(less) register. Square announced Sunday that it plans to acquire the buy now, pay later startup Afterpay for $29 billion. Square is famous for its white card readers and checkout devices, which have become ubiquitous at cafes and farmers markets across the U.S.

Now, it hopes to expand Afterpay's reach in a similar way.

Once the deal is completed early next year, Square hopes to "integrate Afterpay into its existing Seller and Cash App business units" and "enable even the smallest of merchants to offer BNPL [buy now, pay later] at checkout," according to a news release. Meanwhile, Afterpay customers will be able to "manage their installment payments directly in Cash App."

The integration is likely to excite small vendors who will be able to attract more customers by offering payment plans for purchases of all sizes. But it's also consequential for young shoppers, who make up the majority of Afterpay's 16 million-person user base.

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Afterpay, Klarna and Affirm are huge among credit card-wary millennial and Gen Z customers. The brands have become so popular that there are memes and Facebook groups devoted to them. They're accepted by trendy retailers like Anthropologie, Calvin Klein, Glossier, StubHub, Warby Parker and more.

At the same time, young consumers also love Cash App. It's not uncommon for them to use the mobile payment service like a bank account. They can get paid, invest, pay bills, send money to friends (à la Venmo) and even receive their tax refunds on the app.

In that sense, Square's proposal to let Afterpay customers make payments in Cash App is a natural pairing — and one that eliminates a step in the repayment process. Square is also aiming to help Cash App customers find buy now, pay later offers directly in the app.

"The addition of Afterpay to Cash App will strengthen our growing networks of consumers around the world while supporting consumers with flexible, responsible payment options," Brian Grassadonia, lead of Square’s Cash App business, said in the release.

Chance Robinson, president of Strong Point Financial, says the acquisition is a signal that Square one day hopes to become a bank. But while many retailers will welcome the flexibility the acquisition brings, it might be risky, too.

"With that freedom for consumers comes awareness and responsibility, since it leaves that control over personal finances in the hands of that individual," Robinson adds.

Afterpay doesn't charge interest, only late fees for missed payments, but some competitors' financing options amount to fixed-rate loans. Consumers may not grasp exactly what they're getting into. There's also the potential that getting in the habit of buying items you can't afford may lead to reckless spending later on.

Robinson says shoppers, and the firms involved in the acquisition, should be careful. Think twice before breaking a $5 coffee purchase into installments just because you can.

"Square will need to play a predominant part in educating and limiting its users to avoid overspending and over-indebtedness, especially for people deferring their payments for their daily dose of caffeine," he says.

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