The current model of the BNPL industry is not sustainable. „In the coming months, we should expect to see further decreases in valuations.” – GlobalData

Major buy now pay later (BNPL) providers have been unable to make a profit over the last few years as the current model of the BNPL industry is not sustainable and the current economic conditions are likely to make it more difficult for BNPL providers, which is contributing to providers’ valuations shrinking, says GlobalData. However, the leading data and analytics company notes that these decreasing valuations are also offering good opportunities for BNPL acquisitions.

Rising inflation and interest rates have caused the value of BNPL stocks to drop in the past month. As of July 13, 2022, Affirm’s stock is trading at $21.20—a drop from $164.23 in October, according to MarketWatch. Sezzle and Zip also saw their share prices drop to $0.20 and $0.53, respectively. Further, within one year, Klarna’s valuation went from $46 billion to now being worth $6.7 billion.

Chris Dinga, Payments Analyst at GlobalData, comments: “BNPL companies are in an odd position. They’re offering services that help customers afford more expensive items in times of economic hardship, becoming increasingly popular in the meantime, yet those same economic conditions are making margins far too tight. This is perhaps the perfect time for companies looking to offer a BNPL option to invest. A good example is Klarna, which was too expensive to acquire a year ago, but would now be a good investment for any company that would like to offer a BNPL service.”

GlobalData notes that BNPL investors will not be willing to continue to invest in companies that are only focusing on growth and not profits. In the long-term, those companies would have to introduce fees or charge interest in order to keep operating.

Dinga continues: “The lack of profits in the BNPL sector needn’t be a huge concern for prospective companies. Those looking to make a BNPL acquisition would not necessarily need to make profit from a BNPL service, they would just be increasing the types of payment available to customers and merchants. For example, this a great opportunity for credit card providers to acquire not only BNPL solutions but also acquire new technology that they can integrate into their ecosystem to improve their customers’ experience.

“Part of the whole appeal of BNPL has been the convenience those platforms provide to consumers. In the coming months, we should expect to see some acquisitions happening in the BNPL space and further decreases in valuations.”