Forget Square’s Takeover of Afterpay, This BNPL Deal Is Far More Interesting

In today’s Money Morning…expect a wave of consolidation…Southeast Asia’s answer to Afterpay…BNPL as a need, not a luxury…and more…

The talk of the town this week is, of course, the $39 billion takeover of Afterpay.

A somewhat unexpected but also exciting end to the rise of this Aussie juggernaut. The business will inevitably go down in history as one of this country’s biggest (and quickest) success stories.

I should know, I’ve been following the company since its merger with Touchcorp in 2017. The foundation and backbone of the actual app…

But you can’t deny that Afterpay took their payments technology to the next level. Cultivating a much-loved brand around the simple ‘buy now, pay later’ (BNPL) premise. A premise that is now responsible for an entire global industry.

Suffice to say, I think they’ve achieved far more than many thought.

Now, though, the real question is what happens next. Because this Square deal has led to a lot of opinions flying around.

I’ve even seen a few pundits try to compare this deal to AOL and Time Warner back in 2000. What was, at the time, the biggest merger ever. And more importantly, it quickly became the biggest flop of all time when the dotcom bubble burst a few months later.

So could Afterpay and Square be about to share a similar fate?

Expect a wave of consolidation

Personally, I don’t think Square or Afterpay are going away anytime soon. Both businesses are wildly popular with their target audience, and wildly popular with investors.

In terms of whether this was a good deal, it is tough to say.

As our in-house BNPL sceptic, Greg Canavan, noted yesterday:

Square Inc, which trades on an FY22 price-to-earnings (P/E) multiple of 309 times, just bought a company trading on a P/E of 428 times.

In other words, it’s a bubble merging with another bubble from a strictly value point of view.

Others might argue that Square is trying to get ahead of a potential trend. Because I would not be surprised if this deal kicks off a wave of consolidation and takeovers for BNPL companies.

Whether it be in Australia, the US, or anywhere really.

Because no matter what you think about the BNPL sector, it has proved it has staying power. And even if we see the bubble burst from an investing point of view, just like the dotcom crash, expect the best businesses to survive and thrive in the long term.

Which is why, today, I want to talk to you about another recent BNPL deal. One that isn’t getting nearly as much attention as this Afterpay and Square tie-up.

Granted, it probably has a lot to do with the fact that this deal is only worth US$2.5 billion — a paltry sum compared to the $39 billion Square is paying for Afterpay.

But I’d wager that it won’t stay that way for long.

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Southeast Asia’s answer to Afterpay

On Tuesday, FinAccel Pte announced that it was going public in the US. Agreeing to a merger with blank-cheque firm (a SPAC) VPC Impact Acquisition Holdings II. Valuing the combined entity at US$2.5 billion.

So who is FinAccel?

Well, most importantly, they are the parent company of Kredivo. An Indonesian-based buy now, pay later provider. The largest of its kind in the extremely populous nation.

Now, though, with this deal, Kredivo plans to start expanding to its regional neighbours. Looking to enter both Vietnam and Thailand in the near future.

The company currently offers a mix of instant credit, offline purchases, personal loans, and of course payment instalment options. All of which is apparently handled and approved by real-time AI decision making.

And with four million approved customers, they have a decent initial following. As well as a pretty robust relationship with key merchants too. Kredivo has already secured agreements with eight of the top 10 e-commerce businesses in Indonesia.

All in all, they’re roughly at the same stage Afterpay was at back in early to mid-2019. A promising fintech that is on the rise.

But the reason I think you should take an interest in Kredivo is because of where it is based.

Indonesia alone has over 276 million people within their borders, while the broader Southeast Asia region has more than 675 million.

A lot of people, in a densely populated part of the world.

And more importantly, most of them are still unbanked.

BNPL as a need, not a luxury

As a region filled with emerging economies, a lot of people in Southeast Asia don’t have the luxury of a simple savings account. Let alone access to credit, mortgages, or other ancillary services.

66% of the entire 675 million population either have limited or no access to banking services. But what most of them do have is a smartphone.

Which is why Kredivo, more than most BNPL providers, has a real shot at becoming the new way of banking across Southeast Asia. A provider that can not only offer payment instalments, but a means to manage money that isn’t afforded to most people in this region.

Of course, critics will point out that this is because there isn’t a lot of wealth in Southeast Asia. As an emerging economy, they are still grappling with the issue of bringing people out of poverty.

And yes, that is a valid point.

But don’t expect things to stay that way.

Southeast Asia is emerging fast, rapidly increasing not only its combined wealth but also its overall productivity. A trend that will help it become a formidable economic region in the years and decades to come.

By laying the groundwork now, though, Kredivo is getting in before the bigger boom. Enabling them to capture a market share that traditional banking can’t. A chance to really exemplify what neo-banking is all about.

Of course, there are no guarantees they will succeed. But there were no guarantees Afterpay would be sold for $39 billion a year or two ago either.

Some may think this is the end of the BNPL trend.

In my view, the real innovation is just getting started…

Regards,


Ryan Clarkson-Ledward Signature

Ryan Clarkson-Ledward,
Editor, Money Morning

PS: Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.


Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks by dissecting the latest events affecting the world.

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