When the economy was booming, the buy now, pay later space was booming. But as inflation and interest rates rose, consumer-focused players in the space struggled with more defaults amid less discretionary spending.
Citing economic turbulence, Affirm announced last week that it would cut its workforce by 19% and close its crypto unit. It also missed analysts’ estimates on revenue and profit; To confirm stock collapsed on the news, sending its valuation to less than $3.7 billion. (When it went public in 2021, its valuation was $12 billion.) Swedish BNPL giant Klarna has also taken a huge hit in its valuation, topping out at $6.7 billion in July, down 85% compared to June 2021.
Morgan Stanley demoted Also reaffirmed last week’s stock, saying the company’s offering is “too large given limited incremental benefits”
In September, the Consumer Financial Protection Bureau released a report suggesting that companies like Klarna, Affirm and Afterpay, all of which allow customers to pay for products and services in installments, should be subject to stricter scrutiny. The report may have been too little, too late; Many are concerned that BNPL is not responsible lending, and it is difficult to say whether the model itself is sustainable in the long run.
In July 2022 reportFitch Ratings noted that some of the largest BNPL providers had default rates more than double in previous quarters, while delinquency rates were relatively flat, “underlining the lower asset quality of the BNPL,” the report said.