Those who bought the BNPL story before are paying for it later
If ever there was a business model for the times it was buy now, pay later. Load up young consumers with debt on the promise there was no interest cost, charge merchants high service fees to cover marketing, and rely on cheap funding, FOMO and a very benign credit cycle.
In the cold light of day, it was obvious 'buy now, pay later' (BNPL) was doomed. Granted, it did last longer than many had forecast — and bet — but then so did the era of near zero interest rates and the non-existent inflation that fuelled it.
BNPL is now enduring wave upon wave of death rattles, with the mass sackings at Block just the latest. Many brands have failed, and Commonwealth Bank wrote down its stake in Swedish fintech Klarna from $2.7 billion in 2021 to $419 million in the latest annual report.
As Jack Derwin has been reporting for Capital Brief, one time market leader Afterpay, bought by Block for $39 billion, faces an existential threat — a business model based on low interest rates, Covid-era online spending growth, benign bad debts and no regulation no longer works.
Moody’s Investors Service published a report just before Christmas noting the sector faces low recurring revenues alongside sky-high marketing and customer acquisition costs, leaving it reliant on venture capital and equity financing.
