ASX buy-now-pay-later stocks enter regulatory spotlight

From relative obscurity, buy-now-pay-later (BNPL) services have become instant superstars. As consumer preference shifts from credit cards to interest-free instalments, the market for BNPL providers also grows, attracting regulations that may curb their capabilities and the fast rate at which the sector is expanding.

It wasn't until 2015 that BNPL caught attention following the launch of Afterpay in Australia. At the height of the pandemic, the sector took off, with as many as 8.5 million customers shared between the three largest platforms — Afterpay, Zip (ASX: ZIP) and Humm (ASX: HUM), according to Savings.com.

Customer spending is also growing with A$11.9 billion recorded from Australian customers in the 2021-2022 financial year from A$5.6 billion three years earlier, according to ABC. Globally, spending is expected to further increase, with generous projections between US$650 billion and US$1 trillion by 2025, AJOT reported.


The players and coalitions

Currently, there are 19 BNPL providers in Australia that are catering to millions of customers. The largest in terms of market capitalization are Block (ASX: SQ2), Zip, Humm, Splitit (ASX: SPT), and Sezzle (ASX: SZL).

Block, formerly Square, entered Australia through its record $39 billion acquisition in 2021 of Afterpay. Now, the companies have a combined market capitalization of $59.36 billion, so much more than Afterpay's $100 million valuation when it listed on the Australian Securities Exchange in May 2016.

The company benefitted heavily from a niche it found during the pandemic. It saw its shares skyrocket, as did most of its peers. But as supply chain issues, inflation fears and worries about rising interest rates became more prevalent, confidence in BNPL companies dwindled and have their stock prices. From the chart below, we see that several of Australia's largest BNPL stocks all have fallen ~90% from their respective peaks.

From relative obscurity, buy-now-pay-later (BNPL) services have become instant superstars. As consumer preference shifts from credit cards to interest-free instalments, the market for BNPL providers also grows, attracting regulations that may curb their capabilities and the fast rate at which the sector is expanding.

It wasn't until 2015 that BNPL caught attention following the launch of Afterpay in Australia. At the height of the pandemic, the sector took off, with as many as 8.5 million customers shared between the three largest platforms — Afterpay, Zip (ASX: ZIP) and Humm (ASX: HUM), according to Savings.com.

Customer spending is also growing with A$11.9 billion recorded from Australian customers in the 2021-2022 financial year from A$5.6 billion three years earlier, according to ABC. Globally, spending is expected to further increase, with generous projections between US$650 billion and US$1 trillion by 2025, AJOT reported.


The players and coalitions

Currently, there are 19 BNPL providers in Australia that are catering to millions of customers. The largest in terms of market capitalization are Block (ASX: SQ2), Zip, Humm, Splitit (ASX: SPT), and Sezzle (ASX: SZL).

Block, formerly Square, entered Australia through its record $39 billion acquisition in 2021 of Afterpay. Now, the companies have a combined market capitalization of $59.36 billion, so much more than Afterpay's $100 million valuation when it listed on the Australian Securities Exchange in May 2016.

The company benefitted heavily from a niche it found during the pandemic. It saw its shares skyrocket, as did most of its peers. But as supply chain issues, inflation fears and worries about rising interest rates became more prevalent, confidence in BNPL companies dwindled and have their stock prices. From the chart below, we see that several of Australia's largest BNPL stocks all have fallen ~90% from their respective peaks.