Buy now, pay later providers reveal millions in losses

A decline in sales growth, millions in losses and more regulations could spell bad news for the controversial sector.

Australian buy now, pay later providers have taken a beating on the stock market with shares plunging on average 80 per cent with the sector losing millions and a reported dive in consumer interest in the product.

Investors have been scrambling to sell shares with prices falling close to 12 per cent in a single trading session.

The Australian market is saturated with BNPL providers with 12 listed on the Australian Stock Exchange – the most anywhere in the world.

Afterpay reported a $156.3 million loss for the last financial year, which was up by almost 700 per cent compared to the last year.

Rival BNPL service Zip also reported a $652 million loss, a whooping 3000 per cent increase on last year, where it had announced a $20 million deficit.

Afterpay reported a $156.3 million loss for the last financial year. Picture: NCA NewsWire / John Gass

Want to shop without paying upfront? Read our buy now, pay later guide at Compare Money >

Grant Halverson, chief executive of McLean Roche Consulting, said many people were shocked by Zip’s dramatic loss.

“The sector lost over $1.05bn in 2021 which has concerned many investors,” he told The Guardian.

“Most BNPL apps’ 2021 reports were bad, as sales growth declined, credit losses increased and cash burn increased, with a number seeming questionable in cashflow terms.”

It comes as consumer groups warned that BNPL services could contribute to a “debt spiral” for people already struggling, with calls for the industry to be more tightly regulated like other financial products such as credit cards.

Katherine Temple, the director of policy and campaigns at the Consumer Action Law Centre, has previously flagged that young people could end up in trouble if they rely on BNPL services.

“Buy now pay later providers are normalising debt for really young Australians who are at the beginning of their financial independence and the decisions we make when young can have really long term implications for our future money,” she said.

“I think generally people need to be aware that this product is not free, particularly if you can’t pay on time and it can easily build up into a problem.”

Zip’s shares have experienced a huge drop. Picture: NCA NewsWire / John Gass

Meanwhile, Zip shares have plummeted by 63 per cent from their high, while another provider Openpay has racked up a raft of bad debts as it pushed into the US and UK markets with warnings it could falter if more money wasn’t raised or new shares issued, according to accounting firm PricewaterhouseCoopers.

Lesser known players such as IOUpay experienced a dramatic drop of 96 per cent from its peak, according to Mr Halverson, and another called Fatfish dropped by 84 per cent.

To add to the already fierce competition, payments giant PayPal also announced it was muscling into the space earlier this year by offering BNPL to its nine million Aussie customers, but said it wouldn’t charge late fees.

In what could add to the sector’s woes, the Reserve Bank of Australia (RBA) has also flagged changing rules to allow retailers to pass on the fees charged by BNPL providers to customers, potentially making the payment option far less attractive.

Mr Halverson also noted that RBA figures showed BNPL spend is flat, with $11.5 billion sales in a year, suggesting the sector could have reached its peak already in Australia.