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Afterpay to socialise Block payments

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It would ultimately help to connect Block’s ecosystems, and “by making those connections much stronger, we see a lot of power and a lot of value created for our customers, both in the seller space and the individual space,” Mr Dorsey said.

“We are just getting started integrating Afterpay into Cash App,” he said, while admitting the integration of Afterpay into Square had been distracting.

“We are still extremely early into this integration. This is the biggest thing our company has ever done.”

Block will hold a virtual investor day on May 18 where it will provide more detail on how Afterpay will link Cash App users – who can currently spend, make deposits, buy bitcoin or do their taxes in the app – with its network of merchants, who use Square sale terminals and software to accept payments and manage businesses.

Mr Dorsey said one idea was referring customers walking in a particular suburb or using social media to nearby shops via geolocation technology in smartphones, or to suppliers of goods or services relevant to activities they are pursuing. Cash App will create a similar Shop Directory to the one that helped Afterpay become the second-largest referrer of leads to many retailers after Google.

The investor day could also provide more detail on how Block plans to add social media components to its app. “Absolutely, payments are inherently social,” Mr Dorsey said, responding to a Citi analyst who asked the former Twitter CEO about social media plans.

“We think there is a lot more discovery with Afterpay another step into it. We think there are social networks in the seller side, the employee base of sellers, within Cash App and within Tidal [a music service also owned by Block].

“We are recognising payments is something people do at least weekly and is a very social thing. We want to make sure we are reflecting that in the app, in the architecture, and how we deliver the service to customers all around the world.”

The comments come as Elon Musk buys Twitterafter Jack Dorsey left its CEO role last year to concentrate on Block, where he is bringing an interest in bitcoin together with payments and e-commerce.

He said Cash App and Square will continue to expand globally, and offer a similar set of features in each country.

Higher losses

Block’s gross profit of $US1.3 billion was up 34 per cent, with Cash App recording the highest quarterly inflows ever during the first quarter.

With the US Federal Reserve and Reserve Bank of Australia raising interest rates and flagging more to come, Afterpay’s credit models will be tested given the whole buy now, pay later category that Afterpay created has never existed in a rising rate environment.

Block said transaction, loan, and consumer receivable losses were $US91 million in the first quarter of 2022, up 347 per cent year-on-year due to losses relating to Afterpay. Block released first half afterpay accounts last month showing the total provision for expected credit losses had increased to $151 million, up from $99 million.

Ms Ahuja said Afterpay’s gross losses for the first quarter were 1.17 per cent of Afterpay’s sales, consistent with the level of the second half of last year and previous periods. Previous Afterpay disclosures report 1.5 per cent of sales as losses in FY18, 1.1 per cent in FY19, 0.9 per cent in FY20 and 0.9 per cent in FY21.

“We continue to see healthy consumer repayment behavior with 95 per cent of installs paid on time,” she said.

“It is a competitive market, and we are holding our ground. Our focus, in the near term, is bringing on quality customers to our platform, deliberately managing our loss rates, and driving increased user frequency.

“We are onboarding these consumers responsibly and maintaining discipline here. As you manage loss rates, there are some deliberate trade-offs you are making on growth, but we feel that is the right thing to do in this environment.”

Afterpay has grown to 144,00 merchant customers, up 68 per cent year-on-year with nearly 13,000 square merchants adopting Afterpay BNPL in the first quarter, overall Afterpay numbers by 10 per cent.

Afterpay now has 20 million active consumer users, up 37 per cent year-on-year, Ms Ahuja said.

Referral network

Mr Dorsey pointed to a desire to move into online referrals to retailers, a business dominated by Amazon and Google. He said there had been 350,000 leads from the Cash App to Afterpay sellers already “and we expect that to continue to grow”.

“As time goes on, Cash App will be one of the best ways to discover products companies and business globally – but also around you,” he said.

“The discovery aspect is one of the critical reasons we made this acquisition and why we think it is so strategic for our overall business. It will enable the entire Cash App ecosystem – all our customers – to discover products and sellers both online and offline, Square sellers and merchants within neighborhood. That lead generation is very important, and we think it can grow fairly massively.

“This will allow people, for the first time ever in Cash App, explore all these products and merchants and of course we want to make it as frictionless as possible.”

Analysts are pushing Block to expand its credit offering beyond the short-term interest-free instalment offering pioneered by Afterpay. Other buy now, pay later providers in the US including Klarna and Affirm have a variety of credit options for users.

Morgan Stanley said in a recent report it “still believes that Cash App/Afterpay will need a broader set of credit offerings beyond Afterpay’s interest-free model to fully capture the market opportunity presented by the large Gen Z/Millennial demographic”. It reckons growth is priced in to the Block share price, and said in March it prefers Affirm.

On bitcoin, Block said 10 million Cash App accounts had bought bitcoin, and Mr Dorsey it is now using the Bitcoin Lightning network to allow bitcoin to be used for small, everyday transactions, with instant and free settlement.

Offering bitcoin would “improve the possibility and velocity of serving a more global customer base”, he said.

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