Buy Now Pay Later an update

I wrote an article in August about the acquisition of Afterpay by US financial services Company Square.

Square paid $39 billion for Afterpay making it the largest takeover in Australian corporate history. I wasn’t really sure what they were paying for other than a first mover advantage, given that there does not appear to be anything special about Afterpay’s business model that cannot be replicated.

I saw another article last week that gave an update on the Buy Now Pay Later (BNPL) industry in general.

In summary:

  • There are 12 BNPL companies listed on the Australian Stock Exchange, more than in any other country (This is most likely caused by the favourable regulatory regime in Australia)
  • Collectively these companies lost more than $1 billion in FY 2021
  • A single company (Zip) lost $653m, up from a $20m loss in FY 2020
  • Sales growth has decreased and credit losses have increased

Given the focus on expansion, I expect that we will begin to see consolidation in the BNPL industry as companies exit the market or are taken over. There does not appear to be enough demand for 11 listed companies to continue to operate (a lot of these companies trade outside of Australia as well as domestically).

It’s not clear if the business model is sustainable in the long term with credit losses being higher than expected across the board.

We may also see the cost of BNPL fees increase if the market consolidates (ongoing losses have done little to stop other emerging business models (such as Uber) where investors simply hope that being the last man standing will eventually generate profits).

If BNPL is eventually proven to be a viable business model I expect that the last players left standing won’t be the Australian start-ups but the existing payment heavyweights, Mastercard and Visa.

As for Square its stock is down approximately 25% since the beginning of August, however it is still up around 10% from its 52 week low in May this year which was before the Afterpay takeover.

Reference

https://amp.theguardian.com/australia-news/2021/nov/25/shares-in-australian-listed-buy-now-pay-later-companies-plummet-by-up-to-96

Mark Ellis

About the author

Mark Ellis

Associate Director

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Since joining Rodgers Reidy in 2010, Mark has worked on various insolvency and forensic files. As manager of the forensic accounting team, Mark has the charge of producing expert reports in relation to business valuations and loss & damage claims, as well as preparing solvency reports for other practitioners and reviewing solvency related and voidable transaction claims.

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