Despite the bloodshed of the stock market, buy now, pay later is here to stay

Zip shares have fallen 93 percent in the past year, while the owner of Afterpay, US fintech giant Block, has plunged more than 70 percent.

Competition from banks and technology giants is one of the reasons why BNPL’s valuation has plummeted.Credit:Matt Davidson

With stock prices falling like that, it might be tempting to think about the buy now, pay later concept is in deep contention.

But at this point, it is important to distinguish between the market value of these stocks, and the usefulness of the products.

Much evidence would suggest that many people – especially younger shoppers – find it helpful to split their payments into four installments, rather than risk paying high interest on a credit card. That trend is unlikely to change any time soon.

Recent estimates from the industry show there are around 5.9 million active BNPL accounts in Australia, and on average, they are used for small purchases of around $150.

Compared to the total value of the loan or repayment, it is still a small industry. The Reserve Bank’s latest estimate, published last year, is that less than 1 percent of consumer transactions are paid for with BNPL.

However, there is a big caveat. If a bank allows you to “pay in four”, does BNPL deserve to be its own multibillion dollar industry?

Even so, serious big players have decided “pay-in-four” is popular enough for them to move: Commonwealth Bank, National Australia Bank, Citi, Apple and PayPal have all launched or announced plans for their own BNPL products in the past year or so. more.

Likewise, regulators and politicians have decided this product is now broad enough to justify some form of regulation.

None of that shows me that BNPL as a way to pay for things is going to work as intended – it’s just that the industry is becoming much more competitive.

However, there is a big caveat. If a bank allows you to “pay in four”, does BNPL deserve to be its own multibillion dollar industry?

UBS analyst Tom Beadle, who stood out for the low valuation he placed on BNPL shares during last year’s boom, said BNPL as a payment method is likely to continue in some form as people feel comfortable. But he sees it as just another financial product.

“Perhaps here to remain as part of a broader product offering or as part of a larger organization, rather than a stand-alone business,” Beadle said.

Pays analyst Grant Halverson, a long-time BNPL skeptic, believes the stock market valuation carried out by BNPL specialists is a “big bubble”, but the product itself will last. “It will be a feature, but it is not a separate industry. This is not an innovation, it is just another loan product,” he said.

A more optimistic view is that the BNPL . company can still add value because they do more than just lend money – they have a network that connects millions of customers with a large number of merchants.

Load

By filtering the vast amount of data at their disposal about customers’ spending habits, BNPL companies can use that information to help retailers with their marketing, such as by targeting potential buyers with special offers.

That is something very different from what banks do, although CBA is trying it through its own BNPL product, its investment in online retail, and its broader efforts to retain customers in its digital “ecosystem.”

In a sense, CBA’s involvement in BNPL shows how this sector has fallen victim to its own popularity. The deep-pocketed giants are trying to emulate startups like Afterpay, and win over important young customers.

For investors, it’s a sign of the uphill battle facing companies like Zip and Afterpay, which helps explain the dramatic drop in share prices. But it’s also the reason why consumers will be able to continue to “pay in four,” no matter what happens to this divisive sector of the stock market.

Ross Gittins is on vacation.

The Business Briefing Bulletin delivers key stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.

#bloodshed #stock #market #buy #pay #stay