Some of the biggest names in the buy now/pay later market have seen their stock prices plummet in recent weeks, demonstrating that the runaway growth they’ve seen over the past two years may finally be coming to an end.
Affirm’s stock has been down for several weeks following its last quarterly earnings report when the company signaled it was moving away from funding big-ticket items like failing Peloton exercise bikes to focus on smaller loans for items sold on Shopify and Amazon.
Growth remains strong – Affirm expects its gross merchandise volume to grow more than 75% this year – but is a far cry from last year’s highs.
Likewise PayPal, the dominant BNPL lender according to Arizent researchhas lost much of the momentum it had built during the pandemic and is turning its attention to a “great app” which offers traditional financial services such as savings accounts and discounts on online purchases.
Affirm’s stock closed Friday at $37 per share, down 76% from its peak of $155 per share in early November 2021. PayPal’s stock closed the same day at $103 per share, down 56% from $235 per share over the same period. .
Consumers spent nearly $100 billion on retail purchases last year using BNPL loans split across major players including Klarna, Afterpay, PayPal and Zip, up more than 300% from 2020 , according to a study by Cornerstone Advisors.
There’s still plenty of room for expansion – BNPL loans make up less than 10% of all online purchases – but merchants are gaining bargaining strength as newcomers pile into the lending arena installments and that the banks develop competing offers.
A significant new entrant to BNPL is payment software giant ACI Worldwide, which last week announced ACI PayAfter, a global solution from BNPL ready to connect thousands of merchants to 70 different banks and other lenders at the point of sale through single integration.
Customers at participating merchants will see a PayAfter prompt at checkout to request an instant BNPL loan tailored to the specific purchase, Naples, Florida-based ACI said in a press release. Citigroup, Wells Fargo, Synchrony and Citizens Bank are among the US lenders participating in PayAfter.
Cost of doing business
A likely effect of competition among BNPL providers is downward pressure on the fees merchants pay.
CEO of Klarna last month told Bloomberg that the growing range of point-of-sale lending options available to merchants has driven the closing price of BNPL transactions below last year’s 3% to 6% range, although it does not did not specify where the charges landed.
Affirm’s latest corporate guidelines call for its participation rate, or the company’s total revenue per transaction fee, to remain flat for most of this year, but some analysts expect a drop. expenses.
“As Affirm continues to add enterprise customers like Amazon and Shopify, we believe the company’s participation rate will continue to decline,” said Daniel Perlin, managing director of RBC Capital Markets in Annapolis, Maryland. , earlier this month in a note to investors.
While many BNPL providers still tout interest-free loans — especially for deals where buyers repay in four equal installments — Perlin noted that Affirm in recent months has gradually shifted towards offering loans at higher rates. term with interest, similar to a typical bank loan.
Affirm for a long time BNPL Partner Walmart announces “Give Now, Pay Later” instant in-store loans with terms ranging from 3 months to two years at interest rates ranging from 10% to 30%.
“We believe these trends make Affirm’s finances lean more toward a financial services business model rather than a technology company,” Perlin said.
This is good news for banks for several reasons, according to Nathan Hilt, financial services consultant at Protiviti.
“One of the things people liked about BNPL loans initially was how simple it was compared to credit cards, but with consumers opening multiple BNPL loan accounts, it can be quite difficult to manage them compared to one. credit card, where all of your purchases and money owed are consolidated into one account,” Hilt said.
‘The Wild West’
The BNPL sector is also generally unregulated. The Consumer Financial Protection Bureau investigation announcement two months ago about the practices of BNPL lenders, including Affirm, Afterpay, Klarna, PayPal and Zip, adds further uncertainty to the future of industry players, Hilt said.
“BNPL looks like the Wild West, and if the CFPB adds new rules and transparency that put pressure on existing business models, it could hurt earnings,” Hilt said.
In the UK, BNPL lenders are also not officially regulated, but the country’s financial watchdog last week order four BNPL lenders operating there to clarify the terms of their contracts. Subsequently, Openpay, Clearpay and Laybuy refunded late fees to consumers on canceled BNPL purchases.
Meanwhile, banks are developing their own point-of-sale lending models through Visa and Mastercard installments, increasing the post-purchase installment loan options that most of the largest issuers offer existing credit card customers. American Express is now pushing BNPL offers at the point of sale through AmexTravel.com and Delta Airlines.
New York-based Splitit says it’s seeing strong merchant adoption through a bridging approach, in which Splitit extends point-of-sale installment loans through any customer’s existing credit card, spreading payments for specific purchases over two months to three years.
“The BNPL loan market is very hot, and while fintech players eventually consolidate due to pressure and regulation, banks and traditional credit card issuers have many different opportunities to use the existing business models to get more point-of-sale installment loans too,” said Adam Mawdesley, Chief Revenue Officer of Splitit.