Regulators Are Concerned

Following the opening of an inquiry into the sector by the US consumer authority, shares of numerous "Buy Now, Pay Later" (BNPL) companies plummeted. BNPL programs allow customers to pay for products over time, usually in monthly payments with no interest – but some do levy substantial late payment costs.

  • The Consumer Financial Protection Bureau announced on Thursday that it was requesting information on the risks and advantages of Affirm, Afterpay, Klarna, PayPal, and Zip's products
  • The CFPB expressed worry about consumers' potential to swiftly amass debt through BNPL plans, as well as a lack of adequate regulatory disclosures and data gathering

Investor's Interest

Last year, investors rushed to BNPL stocks as the sector's growth was accelerated by the coronavirus outbreak. Companies like Klarna, Affirm, and Afterpay benefited greatly from a shift in consumer preferences toward e-commerce and flexible loans, as well as massive government stimulus packages. As a result, large tech companies such as PayPal and Block have invested in BNPL, seeking to profit from the industry's expansion.

  • This year, PayPal debuted its own BNPL offering, while Block, formerly known as Square, recently announced a $29 billion acquisition of Afterpay
  • In 2021, however, the tide has begun to turn. Since the beginning of the year, Afterpay's stock has dropped more than 30%, while Zip's stock has dropped 25%

Massive Losses

The growing losses in the sector have concerned investors. Zip's pre-tax loss increased to 724 million Australian dollars ($518 million) in the fiscal year 2021, up from 20.6 million a year earlier. In its full-year figures, Afterpay lost 194 million Australian dollars, compared to 26.8 million in 2020.

  • Meanwhile, economists have warned that regulation could be a key stumbling block for the industry in the future
  • In September, Christopher Brendler, a D.A. Davidson analyst, warned CNBC that a regulatory response "could slow the growth" of the BNPL industry
  • The government of the United Kingdom intends to regulate BNPL. The Financial Conduct Authority, which supervises financial services firms in the country, would be in charge of the nascent industry


  • If successful, Buy Now Pay Later companies could pause a significant threat to relatively more conventional players such as Visa and other credit solutions
  • Many BNPL companies have seen their valuation inflate in the last years as e-commerce took a central spot in consumers' lives
  • Still, BNPL companies operate in a vague regulatory landscape and haven't managed to book a profit yet
  • Many continue to question the potential profitability of these businesses as Affirm's operating expenses ex-SG&A stood at 87% of sales while SG&A expenses on their own stood at 74% of sales


Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.


Photo by Markus Winkler on Unsplash.