When the economy was booming, the buy now, pay later space flourished. But as inflation and interest rates have soared, consumer-focused players in the space have struggle with rising defaults amid lower discretionary spending.
Citing economic turbulence, Affirm announced last week that it was reduce its workforce by 19% and closing its cryptographic unit. He also missed analysts’ revenue and profit estimates; To assert stock plunged on the news, lowering its valuation to less than $3.7 billion. (When it went public in 2021, its valuation was $12 billion.) Swedish giant BNPL Klarna has also taken a valuation hit, hitting $6.7 billion in Julydown 85% from June 2021.
Morgan Stanley downgraded Affirm shares last week too, saying the company’s offers ‘are too big given the limited additional 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 control. Perhaps the report was too small, too late; many fear that BNPL is not responsible lending, and it is unclear whether the model itself is sustainable in the long term.
In July 2022 reportFitch Ratings noted that some of BNPL’s largest suppliers had seen delinquency rates more than double in recent quarters, while credit card delinquency rates were relatively stable, “highlighting the lower quality of assets of the BNPL,” according to the report.