Investors will be eyeing the Afterpay Ltd (ASX: APT) share price this morning after the Square Inc (NYSE: SQ) share price surged to a record high.
The Afterpay share price jumped 5.4% in early trade to $131.97 when the S&P/ASX 200 Index (Index:^AXJO) slipped 0.2%.
It's no surprise that Afterpay is outperforming. Shares in its US bidder jumped 5.8% to $281.81 last night in New York.
Good for the goose is great for the Afterpay share price
The two share prices are largely joined at the hip given Square's all-scrip takeover bid for the Australian-made buy-now, pay-later (BNPL) leader.
Afterpay surged over 30% when the $39 billion engagement was announced on Tuesday. This is the most extravagant marriage for an Aussie entity ever!
Square peg in a square hole
But analysts have largely given the takeover their tick of approval. There is a good strategic rational for Afterpay to be folded into Square.
Being part of a $166 billion market cap global giant will give Afterpay the resources to take on second-mover rivals.
Never mind that Afterpay's banking partnership with Westpac Banking Corp (ASX: WBC) could be put at risk.
ASX banks growing wary
The Australian Financial Review reported yesterday that Westpac is considering pulling the plug. This is because Square is trying to muscle in payments and businesses lending – areas that the big ASX banks dominate.
Westpac provides Afterpay with white-label bank accounts that the fintech can offer its customers.
The bank is relooking at the rational for doing this as the savings accounts will give Square valuable customer insight and a source of funds.
How Square will change the Afterpay share price
Square's core business is to provide payment terminals to small and medium sized merchants. Banks are defending their turf as such terminals are usually provided by these financial institutions.
The value of such terminals goes beyond collecting fees. The data collected is often used in accessing loan applications.
Afterpay on its own didn't pose a threat to the banks. But the merger with Square changes the dynamics.
Will Square-Afterpay turn into the next fintech bank?
The Square-Afterpay fintech can potentially gain millions of customers and it will be in a better position to offer a range of financial services.
Square doesn't have a banking license in Australia, but the AFR reported that this could change in the not-too-distant future.
Square has been awarded a banking license in Utah to enable it to take deposits and make loans. As it's harder to get a US banking license than it is to in Australia, Square is keeping that option open.
The Square share price has surged 83% over the past year when the Afterpay share price added 76%.
Looking at how much excitement the proposed marriage has generated, I won't be surprised to see their share prices push higher.
