Entire Buy Now, Pay Later industry on the brink of collapse

The industry was once lauded as a genius invention — but now it’s close to breaking point, with millions of Aussies set to miss out.

The buy now, pay later (BNPL) sector returned to the headlines for all the wrong reasons last week when the founder of a major BNPL service provider lost most of his $800 million fortune after shares tanked.

US founder of Sezzle, Charlie Youakim, was riding a high when Sezzle’s shares were worth $9.20, but several days ago they crashed by 96 per cent, plunging to just 40c.

Now an expert has warned that the entire industry is teetering near the edge of extinction as cost of living pressures drive Australians away from spontaneous purchases.

Australians can ill afford BNPL services including Afterpay, Zip and Humm because inflation is skyrocketing — meaning many of those still using these payment systems are people who can’t pay back their debts.

To top that off, Covid-19 stimulus packages have ended, which provided a brief lifeline for the bad debts these companies were paying down — but no longer.

It comes as the cost of living crisis continues to rise, with KFC last week admitting to using cabbage to battle with rising costs of ice berg lettuces.

Earlier on Monday, reports emerged that green beans were selling for $39.99/kg at Harris Farm Markets, making Aussies more cautious about what they buy, and how they buy it.

Founder and CEO of buy now, pay later company Sezzle Charlie Youakim had most of his fortune wiped after shares tanked.

Andrew Brown of investment company East72, has long been against the BNPL industry and thinks it could soon be reaching a crunch point.

“The bad debt experience is horrendous,” he told The Sydney Morning Herald this week.

“The simple fact of life is this: BNPL business as a stand-alone means that you are going to attract a large number of people who are incapable of paying their money back, particularly if you don’t have robust credit checks.”

Experts have previously predicted potential “carnage” for the buy now pay later sector as providers burn through cash, bad debts balloon and customers retreat from using the service – a model which they say isn’t sustainable.

Zip and Afterpay have reported massive losses in recent earnings reports and the whole sector is close to breaking point. Picture: NCA NewsWire / Nikki Short

An Aussie store offering BNPL services to buy their wares. Picture: NCA NewsWire /Gaye Gerard

The BNPL sector has been haemorrhaging money all year ever since these companies revealed they weren’t posting the profits they had in previous financial years. 

Many companies in the buy now pay later sector have only managed to stay afloat after partnering with larger entities to bear most of their costs.

Afterpay, for instance, underwent a $39 billion merger last year with US-based Block Inc, run by Twitter Founder Jack Dorsey.

In February, Australian lending company Latitude Group joined forces with another Australian BNPL, Humm, for $35 million cash and 150 million Latitude shares worth $335 million at the time of the announcement.

And then there’s US firm Sezzle which is due to merge with Australia’s Zip for the third quarter of this year.

However, the deal could be in jeopardy after Sezzle's share price plunged to new lows last week, leaving only $35.4 million of the CEO's $800 million fortune.

Zip, too, is feeling the woes of the industry, with its shares diving in the past 12 months, currently trading at 63c compared to $14.53 back in May last year.

Afterpay co-founders Nick Molnar and Anthony Eisen merged with a larger US payment company, which has spared them from most of the bloodbath.

More pain is also headed Australian BNPL providers’ way with Financial Services Minister Stephen Jones indicating on Thursday that the sector would be regulated similarly to credit products by mid-2022, a change consumer advocate groups have been campaigning on.

Tech unicorns are struggling in this post-Covid world.

Other industries are also not coping in the wake of the pandemic as supply chain issues sound a death knell.

Last month, an Australian grocery-tech start-up called Send collapsed, causing 300 jobs to be terminated.

Australia’s construction industry is clinging on to a thread, with an estimated one in two businesses trading insolvent.

Last month, two building firms collapsed just a few days apart.

— With Sarah Sharples