With the explosion of the share price of Afterpay from listing at $1 per share to being valued at over $30billion, we put together the ASX Ultimate Guide to BNPL.
If you’re looking to invest in ASX-listed BNPL companies, then this guide is for you!
Prophets BNPL Theoretical Index:
The below index has been constructed based on a random sampling of ASX BNPL shares. The start date is 4th January 2021.
From the above, you can see that the BNPL index has returned a negative 10.22% In this calendar year to date. The best performers on the index to date are Sezzle (ASX:SZL) and Zip Co (ASX:Z1P) returning 59% and 47% respectively.
The Worst Performers on the list are likely as expected, the smaller BNPL players, who rode the hype train North only to fall back down. The worst performers in the sector are Laybuy (ASX:LBY) and Splitit Group (ASX:SPT) both falling 50%. OpenPay (ASX:OPY) and Douugh (ASX:DOU) were not too far off at around 40% down for the Calendar Year.
The Largest ASX BNPL Shares By Market Cap
Largest ASX BNPL Share:
The Largest ASX BNPL Share by market cap by a clear margin is Afterpay (ASX:APT) valued at a massive $34billion, the share price has ballooned massively since their IPO at $100million back in May 2016. This represents an increase of about 13,000% since the IPO date.
The Runner Up Share:
Zip Co. (ASX:Z1P) is the second-largest Australian listed BNPL share by market cap at $4.67billion. The share price of Z1P has exploded over the past 5-years up a massive 1,238%. However, not quite in the same realms as Afterpay.
Advantages of BuyNowPayLater
The traditional credit environment was often clunky and massively favoured the lending institution. The new BuyNowPayLater model flips this on its head offering consumers a better product with typically better fees and flexibility as compared to traditional Credit Cards.
Benefits of BuyNowPayLater:
- Avoid Paying High Credit Card Interest Rates: Typically BNPL services do not charge an interest rate, most of these will have instead late fee’s if a user fails to repay on time.
- Align Payments with Your Paycycle: One of the things I know that I really struggled with when getting paid monthly was managing cashflow and aligning expenses with my pay cycle. Some BNPL products allow you to align expenses with your cycle.
- Easier Budgetting: The products being bought to the market, especially buy Humm Group, seem to offer more insight to consumers on their spending habits, often with dedicated budgetting tools to assist.
ASX BNPL Strategic Investors
There have been a number of Strategic Investors take stakes in the top BuyNowPayLater players, most notably, Tencent with their investment in Afterpay.
Tencent Invests US$300million in Afterpay: Tencent back in 2020, purchased a 5% stake in Afterpay valued at approximately A$390million. Tencent slowly built up its position over the course of about a month prior to having to announce this as part of its disclosure obligations.
It is understood that Tencent has been attracted to Afterpay’s rapid growth in the United States.
“Provides us with the opportunity to learn from one of the world’s most successful digital platform businesses” and the “potential to collaborate” across a range of areas”Anthony Eisen and Nick Molner In Regards to the Tencent Investment.
However, there are also a number of other Strategic Investments from massive players including the below:
Commonwealth Bank Invests in Klarna: Commonwealth Bank (ASX:CBA) has purchased an initial investment of USD$100million, and subsequently also invested another USD$200million at the same valuations. The US$300million brings CBA’s shareholding in Klarna Group to 5.5% from its initial 1.8% stake.
From the CBA website, CBA and Klarna Group will jointly fund and have 50:50 ownership rights to Klarna’s Australian and New Zealand businesses. CBA also retain the right to partner with Klarna in Indonesia.
Our partnership with Klarna will further enhance the customer experience in our leading banking app and address the rapidly growing demand among consumers for new payment options. In particular, it allows us to build on our leading technology to deliver the very best payment services for our customers and merchants in Australia, on platforms which are safe, secure, and easy to use.Matt Comyn: CBA Chief Executive Officer
ASX BNPL Sector Consolidation
Globally in our opinion, there are 3 major BNPL players, Afterpay, Z1P Co. and Klarna. However, the top two Klarna and Afterpay make up about 93% of the respective market cap of the listed top 3.
On June 10th Giant Swedish fintech firm Klarna raised $639 million in a new funding round led by SoftBank, this values the company at $45.6billion.
In our opinion, Z1P Co. is in the right space for a buy out offer by one of the larger players, potentially Klarna. This would offer Klarna an easier route to break into markets it does not yet service. We don’t believe Afterpay would make a move for Z1P due to geographical reasons.
Increasing Number of BuyNowPayLater Accounts
The number of active buy-now-pay-later accounts continues to increase, see below data collected by ASIC in regards to active accounts from 2015 – 2019. There are over 3.7million active BNPL accounts in Australia as of 2019. However, this number is to be significantly higher now.
BNPL services in the Asia-Pacific region will more than double over the four years to 2024, growing largely at the expense of credit cards, bank transfers, and prepaid cards, Fidelity National Information Services Inc. said in its Global Payments Report 2021.
BNPL accounted for 10% of all e-commerce transactions in Australia in 2020, FIS said.
Key Regulatory Risk for BNPL
Buy now pay later products are relatively new to the market. They allow a consumer to buy and receive goods and services immediately but pay for them over a specified period. The industry has expanded rapidly recently.
From Chapter 5 of the Parliament of Australia report, The National Online Retailers Association (NORA) sees these schemes as an improvement on the traditional ‘layby’ model. They offer huge benefits to the industry, particularly through the reduction or absorption of Card Not Present fraud—which is possible when buyers give credit card details, for example online or by phone or email, and do not present their card.
BuyNowPayLater companies in Australia, do not fall under the provisions of the Australian National Consumer Credit Protection Act of 2009 as this does not apply to certain types of loans, including short-term interest-free credits.
ASIC mentioned in the report that Responsible lending laws do not apply to these arrangements, and this, we believe, does cause real difficulty. We believe that some form of affordability assessment should be undertaken and consumers of these services should have the ability, as many other consumers do, to bring matters to us as the ombudsman if they feel that they’ve been treated unfairly.
Whilst currently in Australia, we are not too concerned about Buy Now Pay Later Regulation, it is a key risk to the industry. However, we believe that the response of any regulations will be in line with how responsibly the companies act. I.e if they start offering significantly large loan products to people, who simply cannot afford them. Whilst this is not in the best interests of the provider, there may be a circumstance where the incentive from the retailer to the provider outweighs the benefit to the consumer.