What does the future hold for ASX BNPL companies – more of the same or something different?
The BNPL sector keeps rising to new heights in user growth and transaction values. Any regulation that threatens to make them harder to use has not come to fruition – yet.
But should investors brace themselves for anything else? M&A activity? More companies pivoting to the sector? Some companies failing?
Glenn Leese, Director of Growth in Australia for TradingView, can see some of these things on the horizon.
Stockhead caught up with Leese earlier this week and asked him for his thoughts on what the next 12-24 months held for the sector.
BNPL will become ‘the norm’ in the future
But first, a reflection on what had changed in the BNPL sector in the last couple of years.
If you’d spent the last couple of years on Planet Mars, the most pertinent difference you’d notice would be that there are far more BNPL stocks listed than there were at the start of 2019.
Back then it was just Zip Co (ASX:Z1P), Afterpay (ASX:APT) and Humm (ASX:HUM) – then known as FlexiGroup – listed.
But the early 2019 IPO of Splitit (ASX:SPT) inspired several other BNPL companies at home and abroad to list, or payments companies to pivot into offering these services.
Leese said four terms would summarise what investors should expect from BNPL going forward – creativity, partnerships, acquisitions, and pivoting.
“While BNPL was new and exciting a few years ago, it’s now very much the ‘norm’ for shoppers,” he told Stockhead.
“This means that change needs to happen to keep the industry moving forward with strong momentum. Originally a disruption technology, BNPL is now looking to be the norm in more areas of our lives.
“We may very well see BNPL or a version of it across many existing processes in order to help transformation. For example, we see Splitit working with existing credit and debit cardholders rather than shunning credit cards.”
M&A activity will heat up
There has been little M&A activity in the BNPL sector and even then, the targets are typically unlisted.
Zip Co (ASX:Z1P) has been easily the most active having acquired US BNPL company Quadpay earlier this year as well as PartPay and SpotCap back in 2019.
Also last year, Afterpay (ASX:APT) acquired Spanish fintech Pagantis to help it expand into Europe.
But Leese reckons we’ll see some more M&A activity in the BNPL sector in the future as companies & investors realise the benefits.
“These acquisitions can rapidly boost the revenue and number of users that a BNPL provider has, which can drastically affect the share price,” he said.
“There is very much a race to ‘control it all’ right now. Afterpay acquired Pegantis in Europe and Zip acquired Quadpay in the US as examples. Investors looking for value might look for future M&A activity.”
And potentially some of the smaller players could become targets
“It’s a game of eat or be eaten,” declared Leese.
“Smaller players could look to band together and increase their user base in creative ways or risk being swallowed by the bigger players – either via the acquisition of purely getting pushed out.”
Beware of future BNPL pivoters
Another potential trend in the BNPL space in the future is existing companies pivoting in and Leese said this could be a threat.
This was particularly true if these companies already had customers as opposed to starting from scratch.
“These companies have the power to heavily challenge the well-known BNPL players. Some players that have been pivoting are PayPal (Pay-in-4), Commonwealth Bank (Klarna), and even American Express (Plan It),” explained Leese.
“Regardless of how far along these companies are with actually competing heavily, they are large enough to pose a huge threat.
“Of course, in such a disruptive space, there’s always the chance a new player could take the market by storm, but if you look at the market share already taken by big players, it’s unlikely.”
Investors need to do their homework
Despite Afterpay and Zip going from strength to strength, 2020’s class of BNPL IPOs – Payright (ASX:PYR), Laybuy (ASX:LBY) and Zebit (ASX:ZBT) – have all flatlined since debut.
Leese says would be investors need to do their homework on individual companies – and warned not all players would do well or hand around.
“Every BNPL is different and they are all trying different things,” he explained.
“Payright is designed for larger purchases over longer periods of time, they essentially compete with HUMM more than Credit Intelligence (ASX:CI1) or IOUPay (ASX:IOU).
“These two are quite different business models. The whole sector is in ‘test mode’ and the market will determine what works over time.”
In absence of a BNPL ETF (for now), the only way to have exposure to the broad sector is to invest in the individual companies.
“Instead of putting all your money into one BNPL player, it’s generally better to find several providers of various market caps and different business models to spread the risk,” he said.
“The sector might be here to stay, but that doesn’t mean all the individual players will be.”
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The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead.
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