By Gareth Vaughan
Just a couple of years ago there was huge excitement about buy now pay later (BNPL) companies. Via smartphone applications, or apps, their buy now and pay over installments service was drawing in consumers and worrying banks.
The high water mark saw US payments company Square, now Block, strike a US$29 billion deal to acquire Australian BNPL service provider Afterpay in August 2021.
But 18 months on the picture is very different with several BNPL companies in serious difficulties or shutting up shop. Latitude Financial Services has just announced its pulling the plug on Genoapay, its BNPL service. Openpay went into receivership, Humm pulled out of the New Zealand market and NZ company Laybuy has delisted from the Australian Stock Exchange.
So what has gone wrong with the BNPL sector? And did its substance ever really match the hype swirling around it?
To discuss this we spoke with Melbourne-based Grant Halverson, CEO of retail banking and payments consultancy McLean Roche, in the latest episode of interest.co.nz's Of Interest podcast.
Halverson notes that BNPL services, in one form or another, have been around for centuries. The new twist was putting an app on a phone. He notes the sector, which both the NZ and Australian governments are moving to regulate, currently offers unregulated credit.
A long time critic of the sector, Halverson describes it as: "Worse than payday lenders in terms of what they're doing, but they do it with an image that doesn't actually hold scrutiny."
Whilst supporting moves to regulate BNPL services, Halverson suggests many of the companies won't be around for much longer as the rising interest rate environment has dramatically increased their funding costs.
'I think it [the future] is very dismal. I think unless they can be bought by somebody most of them [ BNPL companies] will have disappeared by the end of this year. They're all in trouble, they're all in deep trouble," says Halverson.
28 Comments
The story of greedy Monkey fits the humans.
If you give greedy dumb monkey one banana monkey will eat one. If you give greedy dumb monkey 4 bananas, money will eat 4 straight away. Monkey does not care where monkey is able to digest 4 or not.
Same goes with humans, you try to give them easy access to credit, they will spend it, they do not care if they are are able to service the debt.
Most humans are still greedy monkeys, so need a few smart ones to control and keep a tab that dumb ones don't over eat and have digestive problems. That puts a strain on already over worked health departments. 😁😁😁
BNPL was a child of ZIRP. It wouldn't have evolved if debt wasn't free. As Mauldin notes this morning:
Interest rates change the way borrowers behave. When capital is expensive, they borrow to build new productive assets that will generate self-sustaining cash flow. They open businesses, build factories, develop innovative new products. Conversely, cheap capital—the kind artificially low interest rates provide—incentivises the use of borrowed money to buy existing assets, not new ones.
Well there’s a surprise. And of course the regulators didn’t regulate no doubt cos they saw the as “disrupters” of the (regulated) banks and credit card cos. In addition to being outside the CCFA (or whatever) these schemes are charging retailers unregulated transaction fees e.g. 5-6 per cent the cost of which is no doubt passed on in product pricing to us non users.
Slightly off-topic, but on the same rationale that cheap debt has caused all sorts of poor outcomes for our society, aside from BNPL, we get:
Where once only 50 children were allowed at a centre, and 25 if they were under 2, in 2011 the National government bumped it up 150 and 75 respectively.
The small locally-owned kindy up the road 'benefited' from this change, and was taken over by an Indian migrant family, Auckland based company, and went from a quite small group of children, singing "Frère Jacques" in the morning to wild uncontrolled screaming and shouting - all day long. One parent I know, who withdrew their child as a consequence told me "He wouldn't put his dog into their care if he went on holidays!"
https://www.stuff.co.nz/national/education/300814789/the-jugglenaut-how…
Luxon has just announced an increase in child care subsidies ….$16k now
good for business I guess having your staffs costs paid for…..tough on single paye earners forking out for it
so luxons five point plan….more childcare subsidies, more immigration, tough on gangs and savings on consultants
can’t remember the fifth
is that really a plan for a country? what planet is Chris on
This is what happens when your candidate wants to be prime minister because he wants to be prime minister.
He's no doubt a smart guy and a good leader, but my take is that he's driven entirely by ego and couldn't give a rat's bum about your "average kiwi". Hence a notable lack of any conviction or substance.
Still, that hardly makes him unusual - Gareth Hughes and Jeanette Fitzsimmons and maybe a few others would be the outliers who actually seemingly went into the hellhole of politics for altruistic reasons. I would not include Ardern in that list.
Which teachers earn $80kk J.J? The payscale starts at $48kpa, and slides up to $90k for 11 years of experience, passing all performance criteria every year. With a few additional responsibilities (HoD and extra-curricular activities) it might bump up to $110k - if you work at a favourable school. Schools may of course pay more than that if they wish, but "average teacher salary in nz" search returns results varying from $64-74kpa.
In fact, I just wrote a letter to the Minister of Education about it on Friday, because the reward for 3-4 years of study is a job that, once SL payments (required to get the degree) are taken out, pays less than minimum wage in the hand, with no overtime rates, until you're 5 years out of study!
Who's out of touch?
is that really a plan for a country? what planet is Chris on
Well given the current Labour policy for childcare has apparently been 'ignoring it completely until someone else comes up with a better policy' I'll take the Luxon version and actual improvement over what we have now if it's all the same.
Yep I’m with you. At the very basic level all they did was digitise the old laybuy system of walking into a store and giving them $50 cash a week until your flash new jacket was paid for (as I remember doing in 2005!).. the rest was just hype, people trying to spot ‘the next big thing’ with unrealistic returns and poor DD.. once those ridiculous market caps were placed on them it was never going to end well
The answer is very simple and is mentioned in most of the comments, greed. Many schemes are created with full knowledge that there will be social issues and individuals being financially harmed but do the creators care......no because all they care about is money at any cost to others.
Some schemes to be fair are probably created with good intentions but then greedy people find ways to manipulate the scheme to make money for themselves, often with a cost to others but once again they don't care. This goes on everyday in NZ and around the world and will never stop because money to the greedy is like drugs to an addict, they can never get enough.
Interesting podcast but plenty of gaps in here. BNPL is a shopper marketing tool that shifts the cost of the transaction from the shopper to the vendor where the closure of a sale can happen when one may not exist. As Gareth says in the interview, it's essentially the same as laybuy, just bundled into a digital platform. Just because the commercialization of these platforms has failed for now does not mean this is not a viable solution.
Furthermore, Grant talks about the relatively small size of the addressable market. Sure. But the boomers are not going to be in control forever. Younger age demographics may be partial to BNPL over the existing credit card cartel.
Finally Grant concludes with a dig at crypto and mentions that it takes 7 mins to process a transaction with ol' ratty. While that is partially true, does anyone care that it might take 7 mins for a process to be completed if someone is buying a big-ticket item like a car or a house? Using tradfi could take far longer. Moreover, Grant is obviously not well-informed about 2nd-layer systems such as the Lightning Network that enable , high-volume micropayments down to 0.00000001 BTC (1 sat) without the need for an intermediary and dramatically reduce transaction costs. Just because it isn't mainstream now doesn't mean it doesn't exist. And who wants to buy a coffee with a deflationary asset like BTC anyway? You can use fiat for that.
Banks could have killed BNPL quickly if they thought there was actually valuable customers involved.
If they marketed how BNPL lending was really no different to having a credit card, (up to 6 weeks to pay, no interest unless payment missed etc), BNPL wouldn’t really offer anything except for the fact they seem more willing to look at borrowers with poorer histories.
Then bank credit cards offer a lot of benefits above BNPL options, such as more universal acceptance, greater fraud protection, complimentary insurance, rewards points schemes and more.
Hmmm...
Credit card arrears have climbed to 5% of active accounts in January 2023, the highest level recorded since January 2021.
Buy now pay later arrears have also climbed to the highest level recorded (9.3%), which is similar to arrears rates seen in unsecured personal loans.
Because most pay using credit cards over BNPL, the scale of the problem is likely to be far bigger with credit cards, despite the % of accounts in arrears being lower.
https://www.interest.co.nz/personal-finance/120105/credit-bureau-centri…
What went wrong was that 90% of the BNPL sector are not BNPL providers but providers of unregulated credit. There is only one real BNPL provider, the one that invented the term, and that is Afterpay. It only funds small credit purchases and everyone has just 4 weeks to pay. If you don't pay one week you get cut off immediately. Everyone else is lending thousands of dollars to people over 6-12 months terms, without ever bothering to credit check them and just calling themselves "BNPL". Some of them are just bog standard credit card lenders (Klarna, Latitude) who just rebranded themselves. Defaults from what has become sub prime consumer lending was always going to happen, its just that an Afterpay customer will default on a $100 payment while the others will be defaulting on a $5000 loan.
It also comes down to funding turnover. Afterpay turns over their funding 13 times a year, others only once or twice. The ones offering up 6-12 months are not getting the same return on their money as Afterpay is, which is the other reason why they are going broke.
All that is required for regulation is to place a limit on the credit limit a lender can provide without credit checking - $500 should do it. Want to buy something that costs more than that, then prove you can pay it back.
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