US retailers embrace BNPL offerings and consumers may fall prey to impulse buying

The July 2020 survey by Ascent, the Motley Fool research division, shows that US consumers had already embraced BNPL offerings in 2019. 

• One-third of US consumers have used some BNPL offering and the most common item bought with installments, are electronics. 
• Most users claim they choose BNPL to avoid credit card fees (a lot of them don’t have credit cards). 
• The survey shows that most users (c. 78%) don’t understand all of the terms and conditions of BNPL.

This is exactly what concerns me. If a BNPL user is delinquent not only this gets reported to the credit bureaus and the user`s credit score will be lowered, but the interest charges can be higher than those of credit cards. 

Delinquencies are rising in the US and back in July. As a result, OnDeck the publicly traded Fintech online lender was acquired by Enova for $90 million which according to the American Banker is only 10% of its market value in 2015.  Only $8 million is paid in cash, and the rest in Enova stock.

Consumer debt levels in the US remain high and Fintech has contributed to this substantially. What concerns me is that retailers are adopting BNPL offerings to lure consumers. PayPal is in the Buy-Now-Pay-Later business along with several Fintechs (private and public) like Klarna, Affirm, Afterpay and now several Banks are launching such offerings like JP Morgan, AMEX and Citi.  

Shopify, Wallmart, and Xbox Microsoft, just to name a few are integrating BNPL offerings. 

The fact of the matter is that what kind of Fintech services are good for society, is a major topic of controversy. Some would say that it is a matter of financial inclusion, to offer everybody access to consumer loans. Others will say that if this is not done holistically then the loan maybe is increasing the risk of the borrower and worsening his-her financial situation now and in the future. 

The Buy Now Pay Later business offering seems like a fantastic enabler for the end-user, especially those that don’t have a credit card. Several options to choose from, little hassle to execute, mostly no interest rate charges but flat fees. But again, nobody has the full picture of the consumer`s finances (assets & liabilities) and the contextual uncertainties to decipher whether another BNPL transaction will impact or not the bottom line. 

Alex Johnson covers the topic of Embedded Finance in some detail and points out that `companies can drive customers to make decisions that aren’t necessarily in their best financial interests.`

All these doubts, as Affirm (one of the main US BNPL players), is preparing for its IPO with an expected valuation of up to $10billion. It is an 8yr Fintech that has raised 1.3billion with the $500million freshly raised in September.  

Is kicking the can down the road, good for your financial life? For some, it does not matter but for many, it makes a whole lot of a difference. Especially for those that the BNPL offering is the only way to make the purchase. 

Down and under, Afterpay (ASX: APT) the already publicly listed major BNPL player that is international already had surged close to AUD100 and a market cap of $26billion (now trading c. AUD70). It listed back in 2017 and has risen since over 2000%. 

 The Motley Fool reports that its sales soared 112% to $11.1bn, active customers increased 116% to 9.9million and active merchants are up 72% to 55.4k. However, the EBITA gains of 73% to $44.4m reported are masking the reality. They are only due to FX gains from AfterPay`s foreign business and the group’s EBITDA has actually dropped 4.9% from the previous corresponding period. 

Seems that investors are betting that the BNPL Fintech business model will become the new normal. The question remains whether such a development is in the best interest of end-consumers. Despite the rebundling Fintech trend, nobody has the entire picture of your finances and almost everybody continues to have several financial service providers – explicitly or hidden. 

The BNPL publicly listed stocks include: Afterpay (ASX: APT), Zip Co (ASX: Z1P), and FlexiGroup (ASX: FXL), Sezzle (ASX:SZL),  and Splitit (ASX:SPT). Affirm is one the big private ones but soon will step into the publicly listed space. 

Not all Fintech services are good for society, the economy, or the end-user but they maybe be good for investors. What an irony! 

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