What does the future hold for ASX BNPL companies \u2013 more of the same or something different?<\/p>\n
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 \u2013 yet.<\/p>\n
But should investors brace themselves for anything else? M&A activity? More companies pivoting to the sector? Some companies failing?<\/p>\n
Glenn Leese, Director of Growth in Australia for TradingView<\/a>, can see some of these things on the horizon.<\/p>\n Stockhead<\/em> caught up with Leese earlier this week and asked him for his thoughts on what the next 12-24 months held for the sector.<\/p>\n \u00a0<\/p>\n But first, a reflection on what had changed in the BNPL sector in the last couple of years.<\/p>\n If you\u2019d spent the last couple of years on Planet Mars, the most pertinent difference you\u2019d notice would be that there are far more BNPL stocks listed than there were at the start of 2019.<\/p>\n Back then it was just Zip Co (ASX:Z1P)<\/strong><\/a>, Afterpay (ASX:APT)<\/strong><\/a> and\u00a0Humm (ASX:HUM)<\/strong><\/a> \u2013 then known as FlexiGroup \u2013 listed.<\/p>\n But the early 2019 IPO of Splitit (ASX:SPT)<\/strong><\/a> inspired several other BNPL companies at home and abroad to list<\/a>, or payments companies to pivot into offering these services<\/a>.<\/p>\n Leese said four terms would summarise what investors should expect from BNPL going forward \u2013 creativity, partnerships, acquisitions, and pivoting.<\/p>\n \u201cWhile BNPL was new and exciting a few years ago, it\u2019s now very much the \u2018norm\u2019 for shoppers,\u201d he told Stockhead<\/em>.<\/p>\n \u201cThis 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.<\/p>\n \u201cWe 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.\u201d<\/p>\n \u00a0<\/p>\n There has been little M&A activity in the BNPL sector and even then, the targets are typically unlisted.<\/p>\n Zip Co<\/strong>\u00a0(ASX:Z1P)<\/a> has been easily the most active having acquired US BNPL company Quadpay earlier this year<\/a> as well as PartPay and SpotCap back in 2019.<\/p>\n Also last year, Afterpay (ASX:APT)<\/strong><\/a> acquired Spanish fintech Pagantis to help it expand into Europe.<\/em><\/p>\n But Leese reckons we\u2019ll see some more M&A activity in the BNPL sector in the future as companies & investors realise the benefits.<\/p>\n \u201cThese acquisitions can rapidly boost the revenue and number of users that a BNPL provider has, which can drastically affect the share price,\u201d he said.<\/p>\n \u201cThere is very much a race to \u2018control it all\u2019 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.\u201d<\/p>\n And potentially some of the smaller players could become targets<\/p>\n \u201cIt\u2019s a game of eat or be eaten,\u201d declared Leese.<\/p>\n \u201cSmaller players could look to band together and increase their user base in creative ways or risk being swallowed by the bigger players \u2013 either via the acquisition of purely getting pushed out.\u201d<\/p>\n \u00a0<\/p>\n Another potential trend in the BNPL space in the future is existing companies pivoting in and Leese said this could be a threat.<\/p>\n This was particularly true if these companies already had customers as opposed to starting from scratch.<\/p>\n \u201cThese 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),\u201d explained Leese.<\/p>\n \u201cRegardless of how far along these companies are with actually competing heavily, they are large enough to pose a huge threat.<\/p>\n \u201cOf course, in such a disruptive space, there\u2019s 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\u2019s unlikely.\u201d<\/p>\n \u00a0<\/em><\/p>\n Despite Afterpay and Zip going from strength to strength, 2020\u2019s class of BNPL IPOs \u2013 Payright (ASX:PYR)<\/strong><\/a>, Laybuy (ASX:LBY)<\/strong><\/a> and Zebit (ASX:ZBT)<\/strong><\/a> \u2013 have all flatlined since debut.<\/p>\n Leese says would be investors need to do their homework on individual companies \u2013 and warned not all players would do well or hand around.<\/p>\n \u201cEvery BNPL is different and they are all trying different things,\u201d he explained.<\/p>\n \u201cPayright is designed for larger purchases over longer periods of time, they essentially compete with HUMM more than Credit Intelligence (ASX:CI1)<\/strong><\/a> or IOUPay (ASX:IOU)<\/strong><\/a>.<\/p>\n \u201cThese two are quite different business models. The whole sector is in \u2018test mode\u2019 and the market will determine what works over time.\u201d<\/p>\n 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.<\/p>\n \u201cInstead of putting all your money into one BNPL player, it\u2019s generally better to find several providers of various market caps and different business models to spread the risk,\u201d he said.<\/p>\n \u201cThe sector might be here to stay, but that doesn\u2019t mean all the individual players will be.\u201d<\/p>\n At Stockhead we tell it like it is. While Credit Intelligence & IOUPay are Stockhead advertisers, they did not sponsor this article.\u00a0<\/em> The post What should investors expect next from BNPL stocks? Here\u2019s one expert\u2019s view on the sector\u2019s future<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"BNPL will become \u2018the norm\u2019 in the future<\/h2>\n
M&A activity will heat up<\/h2>\n
Beware of future BNPL pivoters<\/h2>\n
Investors need to do their homework<\/h2>\n
\nThe 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.<\/em>
\nStockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.<\/em><\/p>\n