Square might crash the Afterpay (ASX:APT) and Westpac partnership

It looks like Square was an uninvited guest to Westpac’s party…

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ASX shares COVID the words crash with a declining arrow on top

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The elation for Afterpay Ltd (ASX: APT) investors is still fresh, yet Square’s (NYSE: SQ) plan to acquire the Australian buy now, pay later (BPNL) is already ruffling feathers. According to the AFR, Westpac Banking Corp (ASX: WBC) is taking a moment for reflection on how the recent development may impact its relationship with its youthful payments peer.

At the time of writing, the Afterpay share price is off by 0.5% to $126 apiece. This follows a weakening in Square shares in overnight trade.

Let’s unpack the party-crashing at play here.

Encroaching on Westpac’s turf

Square’s proposed $39 billion acquisition of Afterpay has Westpac a little unsettled. In October last year, Australia’s oldest bank revealed a partnership with Afterpay which would see Westpac provide its banking-as-a-service platform to the BNPL contender.

The offering was expected to be symbiotic – Afterpay gets white-labelled bank accounts and Westpac extracts revenue from the payments shift. However, that was before US-based payments giant Square entered the scene.

Now Westpac has been unnerved by Afterpay shacking up with the competition. Square commands a larger market capitalisation than the Aussie bank, at US$121 billion. The company is making a conscious move to disrupt traditional banks with its business deposits and loans.

In an interview with AFR, a Westpac banker said:

We’re thinking through the strategic implications given Square’s interest in merchant acquiring and business loans.

Although, the banker also relayed that it was likely Westpac will continue its relationship through the October launch of Afterpay Money.

What’s next for Afterpay on the ASX

Finally, if the acquisition of Afterpay goes ahead, shareholders will be given the option of two choices. Firstly, investors can elect to receive full consideration in NYSE-listed Square stock. Alternatively, investors can opt to receive shares in Square via a secondary listing on the ASX.

The Afterpay share price has rallied 78% over the past year on the ASX. Meanwhile Square pulled an 82% return over the same period.

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Motley Fool contributor Mitchell Lawler owns shares of AFTERPAY T FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO and Square. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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