Australia was the “canary in the coalmine” for Buy Now Pay Later lending, and it survived the test. After that, the stars aligned, as e-commerce jumped during the early days of COVID-19. But the BNPL model may soon be a victim of its success.
We illustrated how the “no-interest” and “no interchange” models did not work as promised for consumers or merchants. And, we showed the stock’s volatility which might make the product a thing of the past. But, today’s read comes from a different angle, in a Business Insider article that suggests a “day of reckoning” in an “overcrowded and unsustainable” field.
- Payment experts are calling time on the hot and overcrowded buy now, pay later sector.
- With no regulation, a packed field of new entrants, and little prospect of profitability for many, smaller platforms are unlikely to make it; consultant Brad Kelly told Business Insider Australia.
- A similar view has been echoed by incumbents themselves, with both Humm and Zip anticipating a period of consolidation.
The article uses Hunger Games as a metaphor for the future market.
- “Afterpay will survive, Zip will survive, and the rest will end up in a Hunger Games-style race to the death,” Kelly told Business Insider Australia.
- “Latitude and Humm operate primarily as standard consumer finance businesses, and the rest of them will just disappear or devour each other.”
- It’s a dire prediction for a payment niche that has exploded into ubiquity in recent years, attracting investment from two of Australia’s largest banks and countless Australians mesmerized by skyrocketing stock prices.
Mercator called out the BNPL market issues several times, but here are a few BI highlights.
- The BNPL market is saturated, and two things are happening. One, a higher level of risk appetite is entering the market – that is regulatory risk and customer risk, where the customers’ profile is becoming riskier,” Kelly said, noting credit checks aren’t part of the business model.
- “The other is that at the bigger end of town, Afterpay and Zip are going on spending sprees buying up as many other BNPL companies as they can because they don’t have a road to profitability, and they are instead just growing revenue.”
- More to the point, they will have done so with the implicit backing of both the federal government, the regulator ASIC, and the Reserve Bank of Australia (RBA), all of which have either directly celebrated the sector or at least been content to sit on the sidelines.
- Falling in a gap of the Credit Act, most aren’t beholden to existing regulation and have been allowed to ‘self-regulate, leaving Australians vulnerable.
- “The problem we have got is because there’s a regulatory hole, these people are driving trucks through it, and they are entitled to do so because the rules haven’t changed,” Grant Halverson, managing director of financial services consultancy McLean and Roche, said.
- Halverson said it has meant space is attracting “dubious business models,” bad debts, and high-interest rates, with most of Australia’s 22 BNPL platforms simply payday lenders under another guise.
As for Hunger Games, I admit we never read the book, but we indeed read the market.
Overview provided by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group