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New entrants are undeterred by the downturn. Australia's financial services minister said on Tuesday the government would push to regulate BNPL lenders under credit laws. UK charity Citizens Advice said on Tuesday that half of 18-34 year olds in Britain had borrowed money to make their BNPL payments.īritain’s finance ministry has launched a consultation on how BNPL firms should be regulated. The sector also faces increasing scrutiny from regulators, as consumers struggle with rising costs. it’s costing them more money to extend money out to consumers and that puts pressure on their margins.”Ĭompanies that are more insulated include Klarna and Block which have bank charters and could fund with deposits, analysts say. But generally they need to borrow these funds to lend out and as interest rates associated with borrowing those funds increase. “There are certainly a few exceptions to that. “Most buy now pay later providers don’t have access to deposits, they generally aren’t financial institutions,” said Jordan McKee, principal research analyst at 451 Research. The Swedish-based company cited shifting consumer sentiment, inflation and the war in Ukraine as reasons, and said it is in talks with investors to raise more money.įor smaller players, many of them fledgling start-ups, accessing funding to lend to shoppers will become more difficult. Top BNPL firm Klarna, which was valued at $46bn after a funding round a year ago, recently laid off 700 staff, 10% of its workforce. “Right now there’s more caution and less interest (in BNPL firms from investors) because of the financial risks that could become apparent here if we are in an economic slowdown or a potential recession,” said Bryan Keane, senior payments analyst at Deutsche Bank. Shares of Jack Dorsey’s payments firm Block, which bought Australian BNPL provider Afterpay in a deal completed in January, are down about 48% in 2022. Their share prices were already under pressure, with Affirm down about 75% this year.
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There are more than 100 BNPL firms globally, according to S&P Global Market Intelligence’s 451 Research.Īpple’s announcement this week that it would launch its own deferred payments service will further intensify competition and briefly knocked the stock price of listed players such as Affirm Holdings, the biggest BNPL firm in the US, and Australia’s Zip and Sezzle. The model proved popular among young consumers during the Covid-19 pandemic as e-commerce volumes soared, with buy now pay later transactions accounting for $2 in every $100 spent in e-commerce last year, according to GlobalData.īut the sector faces a reckoning as the circumstances which fuelled its explosive growth are coming to an end, with consumers cutting spending and rising interest rates pushing up BNPL firms’ funding costs, squeezing their margins. The BNPL business model emerged out of a low interest rate environment which enabled BNPL firms to raise funds at low cost and offer point-of-sale loans to customers on online shopping websites.Ĭonsumers pay for their purchases in instalments over a period of weeks or months, usually interest free, and BNPL firms charge online retailers a fee for each transaction. London - Reduced consumer spending, rising interest rates and trickier credit conditions spell trouble for buy now pay later lenders, raising the prospect of consolidation in the sector.īuy now pay later (BNPL) firms have created one of the fastest-growing segments in consumer finance, with transaction volumes hitting $120bn in 2021 up from $33bn in 2019, according to GlobalData.