WHEN: Today, Monday, August 2, 2021
WHERE: CNBC’s “Squawk on the Street”
Following is the unofficial transcript of a CNBC interview with Square CFO Amrita Ahuja and Afterpay co-founder & co-CEO Nick Molnar on CNBC’s “Squawk on the Street” (M-F 9AM – 11AM ET) today, Monday, August 2nd. Following is a link to video on CNBC.com:
All references must be sourced to CNBC.
JIM CRAMER: Joining us is Amrita Ahuja, who has been on “Mad Money” many times, Chief Financial Officer at Square and Nick Molnar, Afterpay co-founder and CEO. Congratulations to you both. I mean I have a lot of people worried that the stock will be down so Amrita let me ask you point blank, what about this deal has you and probably Wall Street so excited about because don’t we have a lot of buy now, pay laters? Isn’t it crowded?
AMRITA AHUJA: Thanks so much for having us on today. We’re so excited to talk about this transaction which brings together two of the fastest growing fintech companies globally. Buy now, pay later is an incredibly attractive space going after a $10 trillion online payments industry where we’re about 2% penetrated today from a buy now, pay later perspective but we’re seeing those consumer sentiment shifts toward transparent borrowing opportunities like buy now, pay later and with merchants, we’re looking for that omni channel experience to serve buyers across channels whether in person or online through this means. And with afterpay, we have the opportunity to strengthen and closely connect our seller ecosystem which serves millions of merchants and Cash App which serves 70 million active consumers on an annual basis. Together, we can create an even more powerful commerce platform connecting the two.
CRAMER: Okay, let me go to Nick, Amrita. Nick, why did you want to sell? The growth here was absolutely incredible. Why do you need to cash out now?
NICK MOLNAR: Yeah, look. Thank you for having me. From, from our perspective, you know, this all-stock deal, you know, represents a huge excitement for us on the long term, you know, prospects so you know when you think about the merchant side of the equation with Cash App, sorry, with Square’s seller business you have millions of retailers on one side and you have 70 million annual active consumers on the Cash App side of the equation so, you know, to think about the inflection point of where we are in our growth curve right now, which is you say we’re growing still very strongly off really, a really large base, it’s an incredible opportunity for us to expand particularly in the US where we’ve only been for three years but, you know, it’s already contributing 50% of our total sales volume.
DAVID FABER: So simply put, you saw this as a better opportunity than staying an independent company?
MOLNAR: From, from our perspective, we’ve been really fortunate with the growth that’s occurred over the last many years. I mean for, for perspective, we launched in the US just three years ago and within like after two and a bit years, we processed over a billion dollars in the month of volume. So, you know, last financial year, we, on a constant currency basis, grew 170 plus percent year on year in North America. I just believe this opportunity for buy now, pay later in — It’s an amazing opportunity for us.
FABER: Amrita, you know, when I look at Square, I just I wonder in terms of your competition against banks in sort of what have been some traditional lines of their business and others obviously being created, are you or should you be considered in any way something that should be regulated like a bank?
AHUJA: You know, we always work closely with our regulators and as you know we have a charter for a bank, which we just opened a few months ago, which is a subsidiary of Square called Square Financial Services, but the rest of Square works across partners across the ecosystem. And in fact with Afterpay, what we’re seeing here is customers using their own money to make purchases over time in a way that Afterpay can responsibly finance with 15 turns in a year from either their own balance sheet or from financing warehouses and so we see a real opportunity to enable in, you know the next gen consumer that’s looking for different ways and in this experience, an interest free way of expanding the purchase potential. What that ends up doing is merchants pay for the Afterpay experience but they get higher average order volumes, they get greater conversion, they get greater frequency and lower returns and they get a marketing channel from Afterpay, which is sending on average million leads a day to merchants which is ultimately helping those merchants grow their business and that’s what Square is all about helping our customers grow their business.
CRAMER: Okay Amrita, we all know why competitor Affirm. We’ve had Max Levchin on. Affirm doing quite well, it’s less expensive in terms of dollar amount than, than Afterpay. Why, why did you not buy Affirm?
AHUJA: So, there’s a couple of reasons that we think Afterpay is the right partner for Square. First, its high growth and it’s accretive to Square’s growth, it’s rare for Square which is growing at 91% in Q2, our highest growth quarter as a public company, to find another company that at scale is accretive to our growth and if you look on an LTM basis, Square grew our gross profits 71% year over year, Afterpay grew theirs 96% year over year. Second, we see this business model, which is interest free via Afterpay, to be better suited to our view and our purpose of economic empowerment. We see a more complimentary merchant, merchant base, which enables higher frequency purchases across the retail and beauty categories that Afterpay serves. And we see a global footprint with Afterpay serving 50% of their gross merchant volumes in the US and 50% outside of the US, key areas that Square wants to continue to grow. And then, you know, most importantly, we see Nick and Ant, the two co-founders and entrepreneurs who lead Afterpay and will be joining Square who are culturally aligned with our mission and we can’t wait to work together.
FABER: Yeah, I was curious about that Nick. You just heard Amrita say you’re cultural, culturally aligned. What does that mean?
MOLNAR: Look, as we’ve gotten to know the Square leadership team, it’s become imminently apparent how entrepreneurial led the team is. We’re grounded on the same vision, you know, with Square being around economic empowerment enough to pay around fairness and financial freedom for all and our teams, you know, throughout the whole organizations, you know, live those values every single day so as we’ve gotten to know each other over recent times, it became really clear that, you know, not only were our strategies aligned but there was just really clear alignment of purpose and values and to me that’s ultimately the foundation that achieves our long term, our long term strategy and our long term objectives.
CRAMER: Okay, Nick, just explain to me. Let’s say I miss a payment, there’s a fee, how much is the fee and what happens if I miss a second payment?
MOLNAR: Yeah. So, from an Afterpay perspective, the moment you miss your first transaction, we actually disable your account so you can’t keep shopping until you pay that late payment back so fundamentally the opposite of, you know, consumer credit company where if 100% of people pay back the credit card on time, the industry simply doesn’t work. We’ve taken the opposite approach. Our late fees vary state by state and, you know, in many instances actually have a grace, a grace period as well so it’s good business for us to not, to not, you know, earn late fee revenue and income earned from the consumers, you know, is the opposite of a consumer finance company being about 90% from the merchant and approximately 10% from the consumer so it’s fundamentally the opposite of how traditional finance has worked in the past.
CRAMER: Hey Amrita, I know I was talking to JPMorgan this morning. They have buy now, pay later, kind of have it, I guess they really haven’t promoted it I’m sure if somebody wants it, it would be given to them but they are heavily regulated and I think that they always have the regulators in mind before they do anything. Don’t you, mean it’s okay for you to say you’ve got a, you’ve got a big advantage, is it an unfair advantage? I’m sure you don’t say so but when you, when you look at what they’re, what you’re doing. I mean, do you want to crush the JPMorgans and the Wells Fargos?
AHUJA: Look, this is a competitive space, one in which we bring with Afterpay two complimentary sets of assets and one in which we’re just focused on providing greater choice for our customers whether it’s merchants or consumers. We think we will have a differentiated offering. We believe Afterpay today has a differentiated offering because they not only have relationships with 100,000 enterprise merchants but they have relationships with 16 million consumers around the world and that ability to drive inflow of customers from their consumer ecosystem into merchants is ultimately what’s valuable to the merchants and their brand that they’ve developed over the years is very popular amongst Gen Z and millennials, similar to Square. So, we see some real potential overlap and synergy as we think about combining our businesses together.
CRAMER: Wow, I mean they’ve, you’ve got the Cash App, you have the millennials. I understand why the stock is up. I want to thank Amrita and Nick. Always great to see you, congratulations.
AHUJA: Thanks so much.
