Founders of Klarna rival become billionaires in $29bn takeover

Afterpay co-founder Nick Molnar will be Australia's youngest self-made billionaire

Credit: Hanna Lassen/WireImage

The Australian founders of a "buy now pay later" app will pocket $1.8bn (£1.3bn) each after Jack Dorsey snapped up their business for $29bn.

The Twitter chief executive’s payments company, Square, will buy Melbourne-headquartered Afterpay, which is known as Clearpay in Britain, in the biggest takeover in Australia’s history.

Afterpay was co-founded by Nick Molnar and Anthony Eisen. At 30, Mr Molnar will be Australia’s youngest self-made billionaire, having started his career selling jewellery on eBay while at university before meeting Mr Eisen, a 49-year-old fund manager. They founded Afterpay in 2014.

The deal ramps up the prospect of a heavyweight challenger to European pioneer Klarna, but also comes amid concerns of a bubble in the valuations of technology companies.

It is the latest sign of investor appetite for unsecured credit as billions of pounds in venture funding pour into the sector. 

Sweden’s Klarna raised $639m from Japan’s SoftBank in June as investors boosted the value of the company to $45.6bn. The Swedish company has said around 87 million people used its shopping service in 2020. 

Zilch, a UK-based provider, has raised more than $200m from Goldman Sachs and the venture capital arm of the Daily Mail & General Trust.

The merger, which combines Afterpay with Mr Dorsey’s $112bn digital payments company Square, lays down the gauntlet to Klarna, long seen as the most exciting prospect in the space.

Afterpay is attempting to head off Klarna – which was founded in 2005 in Stockholm by Sebastian Siemiatkowski – by expanding into the US. Mr Siemiatkowski is estimated to be worth over $2bn, according to Forbes.

Australia-listed Afterpay allows 100,000 retailers to offer customers the option to pay for products in four tranches without interest. The payments company makes money by charging around 4pc commission on sales and a small fixed fee.

Around 16 million people use Afterpay to buy items for a lower fee upfront, increasingly serving as fuel for sales in fast fashion, beauty and gadgets.

“By combining with Square, we will further accelerate our growth in the US and globally,” Mr Eisen and Mr Molnar said. “The transaction marks an important recognition of the Australian technology sector as homegrown innovation continues to be shared more broadly throughout the world.”

Advocates of “buy now pay later” argue it is cheaper for consumers, as they do not pay interest as they would on a credit card, while weaning people off riskier schemes such as pay-day lending. 

However, consumer watchdogs have cautioned the space remains largely unregulated. The Financial Conduct Authority said in February that as many as one in 10 consumers using such schemes were in arrears, with some racking up thousands of pounds in debts while being allowed to keep spending, and has called for urgent oversight of the sector.

The takeover of Afterpay also provides a boon for London-listed microcap company ThinkSmart. ThinkSmart owns around 10pc of Afterpay’s UK arm, Clearpay, which the Australian firm acquired in 2018. Its shares surged 47pc in trading on Monday to a market cap of £96m.

Square’s takeover of Afterpay will help the two firms accelerate buy now pay later expansion in the US and take on Klarna as it attempts to take its offering worldwide.

Mr Dorsey said Square’s CashApp could be combined with offerings from Afterpay. Square added the move could also attract more younger users, who have been the primary movers of the "buy now pay later" boom, to use its other services.

The all stock deal, a 30pc premium on Afterpay’s share price, will include Square setting up a secondary listing in Australia. Afterpay shareholders will received 0.375 Square shares for each share they own.

In results announced on Sunday, Square reported a profit of $204m and revenues of $4.7bn. Its shares fell 3pc in pre-market trading on Monday.

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