‘Buy now, pay later’ shares tumble on US regulatory probe


Shares of several ‘buy now, pay later’ companies fell sharply after the US consumer watchdog opened an investigation into the sector.

The Consumer Financial Protection Bureau said Thursday it was seeking information from Affirm, Afterpay, Klarna, PayPal and Zip about the risks and benefits of their products.

BNPL services allow buyers to defer payment for items, usually over a period of monthly installments and with no interest, although some charge high late payment fees.

The CFPB said it was particularly concerned about consumers’ ability to build up debt quickly through BNPL plans, as well as the lack of adequate regulatory disclosures and data collection.

Several BNPL companies saw their share prices fall after the announcement. Shares of US-based Affirm closed 11% on Thursday, while Australian companies Afterpay, Zip and Sezzle fell 8%, 6% and 10% respectively on Friday.

Investors flocked to BNPL stocks last year after the sector’s growth was fueled by the coronavirus pandemic.

A shift in consumer habits towards e-commerce and flexible lending, coupled with massive government stimulus packages, has benefited companies like Klarna, Affirm and Afterpay.

This, in turn, has led major tech companies like PayPal and Block to jump into BNPL, hoping to capitalize on the industry’s growth.

PayPal launched its own BNPL offering late last year, while Block, the company formerly known as Square, recently announced a $29 billion deal to get its hands on Afterpay.

But in 2021 the tide will turn. Afterpay shares are down more than 30% since the start of the year, while Zip is down 25%. Sezzle’s stock price has more than halved in value so far. Affirm, which debuted at the beginning of this year, is one of the few BNPL offices that is still green.

Market players are alarmed by increasing losses of companies in the sector.

Zip’s pre-tax loss rose to 724 million Australian dollars ($518 million) in fiscal 2021, up from 20.6 million Australian dollars a year earlier. Afterpay lost 194 million Australian dollars in its annual results, compared to 26.8 million in 2020.

Meanwhile, analysts have warned that regulation could be a major headwind going forward. Christopher Brendler, an analyst at DA Davidson, told CNBC in September that a regulatory response “could slow the growth of the BNPL sector.”

In the UK, the government plans to introduce regulation of BNPL. Companies in the emerging industry would come under the supervision of the Financial Conduct Authority, which regulates financial services companies in the country.

The UK Treasury is consulting with BNPL companies and other stakeholders to inform its plans. The consultation will close on 6 January 2022.



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