12 June 2022 - 10:23London — Reduced consumer spending, rising interest rates and trickier credit conditions spell trouble for buy now pay later lenders, raising the prospect of consolidation in the sector.
The model proved popular among young consumers during the Covid-19 pandemic as e-commerce volumes soared, with buy now pay later transactions accounting for $2 in every $100 spent in e-commerce last year, according to GlobalData. “Right now there’s more caution and less interest because of the financial risks that could become apparent here if we are in an economic slowdown or a potential recession,” said Bryan Keane, senior payments analyst at Deutsche Bank.
“Most buy now pay later providers don’t have access to deposits, they generally aren’t financial institutions,” said Jordan McKee, principal research analyst at 451 Research. “There are certainly a few exceptions to that. But generally they need to borrow these funds to lend out and as interest rates associated with borrowing those funds increase ... it’s costing them more money to extend money out to consumers and that puts pressure on their margins.
New entrants are undeterred by the downturn. British banking start-up Zopa, which reached a $1bn valuation in a funding round in October, announced last week that it would launch BNPL products as part of its offering.