BNPL acquisitions to rise following low valuations

New data on the BNPL market suggests mergers and acquisitions will increase as companies shrink in the current economic climate.

The report by GlobalData indicates that BNPL companies that have seen a drop in valuation will be perceived as opportunities for acquisitions. 

The news comes shortly after BNPL giant Klarna announced it had lost US$40bn of its valuation - and is now worth $6.5bn, which is still bigger than its financial reports showed in 2018 and 2019. 

Rising inflation and interest rates have hit BNPL

Rising inflation and interest rates have resulted in the value of BNPL stocks falling over the past month. For example, Affirm’s stock is trading at $21.20—a drop from $164.23 in October, according to MarketWatch.

Data also shows Sezzle and Zip share prices dropped to $0.20 and $0.53, respectively.

A change in customer spending habits has also impacted the space as those customers shopping online during the pandemic, are now much more circumspect with their spending. New reports have also shown that in the UK, a third of BNPL customers are struggling to make repayments.

A bad market environment for BNPL

Speaking about the reports, Chris Dinga, Payments Analyst at GlobalData, comments explained, “BNPL companies are in an odd position. They’re offering services that help customers afford more expensive items in times of economic hardship, becoming increasingly popular in the meantime, yet those same economic conditions are making margins far too tight. This is perhaps the perfect time for companies looking to offer a BNPL option to invest. A good example is Klarna, which was too expensive to acquire a year ago, but would now be a good investment for any company that would like to offer a BNPL service.”

The GlobalData report also predicts that BNPL investors will not be willing to continue to invest in companies that are only focusing on growth and not profits. In the long-term, those companies would have to introduce fees or charge interest in order to keep operating.

Dinga said, “The lack of profits in the BNPL sector needn’t be a huge concern for prospective companies. Those looking to make a BNPL acquisition would not necessarily need to make a profit from a BNPL service, they would just be increasing the types of payment available to customers and merchants. For example, this is a great opportunity for credit card providers to acquire not only BNPL solutions but also acquire new technology that they can integrate into their ecosystem to improve their customers’ experience.

“Part of the whole appeal of BNPL has been the convenience those platforms provide to consumers. In the coming months, we should expect to see some acquisitions happening in the BNPL space and further decreases in valuations.”