The buy now, pay later space was once a thriving place for consumers. However, as inflation and interest rates climbed, players in the space have had to deal with increased defaults due to less discretionary spending. In order to survive in this changing market, buy now, pay later companies may need to focus on different ways of selling their services.
Both Affirm and Klarna experienced a major fall in value after announcing staff reductions and the closure of their respective crypto units. While Affirm’s staff reduction may be more concerning, as it comes at a time when the company is struggling with growth, Klarna’s fall is more alarming as it suggests that investors are losing faith in the much-hyped cryptocurrency space.
Affirm plans to offer a wide variety of financial products, but Morgan Stanley thinks that these offerings are too large and don’t offer incremental benefits to customers. Affirm may have been overreaching with its recent launches, and investors may be not be as impressed as the company expects them to be.
Many in the industry feel that tighter regulation is coming, and is necessary to ensure that these companies are providing quality products and services to their customers. Though the report may have come too late, it’s hoped that this will set a precedent for companies like BNPL – which many believe do not meet responsible lending standards – and force them to take measures to improve their practices.
BNPL providers were seeing delinquency rates more than double over the previous few quarters, while credit card delinquency rates were relatively flat. This report highlights the BNPL’s lower asset quality, and suggests that there may be potential risks associated with using these lenders.