If you are reading this today, you are probably aware of Mercator Advisory Group’s intense focus on Buy Now, Pay Later developments, published both at the Mercator website and in PaymentsJournal, the media platform. BNPL coverage is from stem-to-stern, including the industry implications, business risks, opportunities, how credit cards and debit cards fit into the picture, merchant risks and opportunities, and the down-range impact on credit. While we wait with bated breath for the upcoming CFPB market analysis, we still watch for industry developments in the interim.
It is interesting to note that every business seems to want to join the BNPL parade, and something that caught our eye was a recent study done by Breeze. Breeze is a company that offers Long-Term Disability Insurance for professionals and suggests that the benefits are an important way to keep your household budget afloat if there is a healthcare catastrophe. OK, this might be a bit of a stretch, but being generally conservative with my personal risk management, let’s acknowledge that the insurance is not a bad idea and move on to their recently published survey.
The survey, covered yesterday by Adweek, a major trade publication, reported two essential metrics:
Around 57% of those users report the promise of delayed payments has caused them to overspend on purchases—sometimes through multiple accounts—and 36% have missed or made a late payment at least once before.
Those numbers are generally in line with Mercator’s BNPL Survey, published in April 2021. However, with another winter holiday season under its belt, BNPL does continue to blossom, though the fintechs also pay the price for their lax underwriting standards.
It is easy to see how BNPL continues to change. Payment networks Mastercard and Visa offer excellent alternatives, and by aligning to the credit card, there is a semblance of credit quality in BNPL. But, on the other hand, the Aussie BNPL stock market is a mess. In an informal BNPL stock index we built in 2020 and 2021, we saw the market capitalization of 12 firms gall by 23.7% in a matter of months. And stocks continue to tumble.
Afterpay appears to be the big winner, and it seems the Square (now Block) acquisition is on target, according to Motley Fool. However, BNPL firm Dough now trades for AUD 0.065 (less than 5 U.S. cents); Openpay, once valued at a high of AUD 3.57, can be bought for a mere AUD 0.68, while net income continues to tumble. Finally, Sezzle, which peaked at AUD 11.99 in early 2021, sells for AUD 2.50, down 70.62%.
So, we await the CFPB view on the topic and expect it to unveil a wide range of BNPL issues. In the meantime, my personal BNPL field testing now indicates that I am near completion of my 18th BNPL loan, more than double what we reported a year ago. Repayment often ties to my Amex or Chase cards so I can harvest credit card rewards.
And, I can report, in my semi-annual review of my credit file at Equifax, Experian, and TransUnion, there is now a tradeline on my file by a completed loan at Affirm. It might not bump up my FICO Score, but it will not hurt.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group