(It is difficult to agree in terms of merger to the subscription when the value of the shares used to finance a deal is in free fall).
The BNPL industry has gone from a consolidation modality to an existential modality. These companies have been so challenged that their new approach has shifted from growth to cash retention.
Smart money understood that even in the time of BNPL’s peak splendor, when the valuations of these businesses were counterintuitively high, music would stop.
Even smarter money increased valuation over the past two years, but dropped before it fell to the ground again 12 months ago.
BNPL’s disciples mounted a compelling argument that these largely unregulated unsecured credit providers were bulletproof: they could handle greater regulation and support a higher interest rate environment.
While stricter regulation has always been a threat, it is now closer to reality. On Tuesday, Labor’s newly-coined assistant treasurer, Stephen Jones, made it very clear that the time to leave these unsupervised corporate teens at the party is about to end. It’s time for a companion.
Many of the BNPL groups have argued that their services, which allow customers to receive goods immediately but pay in installments, do not represent the provision of credit.
On Tuesday, Jones asked the industry to “end the silly argument about whether BNPL is credit … If it walks like a duck and charlatan like a duck, it’s a duck.”
While regulation is ahead, the most immediate concern is rising interest rates. It was the first operational hurdle and most have probably stumbled upon it.
Higher interest rates increase borrowing costs for BNPL players. The industry was born in a period of very low interest rates.
At the same time, higher interest rates can reduce customers ’spending on goods and services through any payment method, including BNPL.
The rhetoric of BNPL operators has shifted from the rampant capture of new geographic territories to a focus on better performance in (usually domestic) markets and cost reduction. There are now many references to the “duration of the financial trail” of BNPL companies (how much money or liquidity they have).
Their ability to raise more cash has been limited or completely blocked, as their respective share prices have fallen by 80 to 95 per cent in the last nine months.
One of the world’s largest BNPL operators, Klarna, unlisted and backed by the Commonwealth Bank, received a new round of financing in which it consolidated an 85% drop in its valuation from $ 45 billion to $ 6.7 billion.
While BNPL billionaires have disappeared, it will be fascinating to see who stays on Survivor Island.