Buy-now-pay-later (BNPL) companies are staring into the abyss. After two years of explosive pandemic-fuelled growth, the sector has found itself crashing down to Earth.
Publicly-traded firms like Affirm struggle in the stock market while poster child Klarna has fallen from being Europe’s highest valued private tech startup to struggle to make the top 10.
This prompts the question: is this the end of the BNPL sector? Analysts suggested that it might be the case in a recent podcast with research and analysis firm GlobalData. Or at least that this is the end of the industry as we know it.
“In its present model, buy-now-pay-later is unsustainable,” Beyza Karakoy, thematic analyst at GlobalData, said. “The model can’t fund itself, and providers may need to charge interest. The sector will also be extensively regulated by 2030.”
True, one of the reasons why the BNPL industry enjoyed skyrocketing valuations was because of the comparatively lax regulations that governed it, especially compared with the older credit industry.
However, lawmakers on both side of the pandemic have heeded the warnings of consumer advocacy groups, saying that BNPL services could lead people into financial ruin if left unchecked. Several regulators and politicians are now actively working on introducing new bills to better police the industry.
More trouble on the horizon for buy-now-pay-later industry
Another threat for smaller BNPL startups is that bigger players – such as PayPal, Mastercard, American Expres, Goldman Sachs and Apple – have all launched instalment products of their own.
“We expect Big Tech companies to dominate the buy-now-pay-later market,” Karakoy said. “While companies such as Klarna and Afterpay will need to change their models to survive, Big Tech has the capacity to seamlessly incorporate buy-now-pay-later into its platforms, forcing fintech’s with unsustainable revenue models out of the market.”
The BNPL industry is not standing idly by and letting their businesses fall apart. Several of them are actively expanding their services to create super-apps, which are de facto one-stop shops for customers’ financial needs.
GlobalData is the parent company of Verdict and its sister publications.