BNPL players will deplete equity within ‘two to three years’
Buy now, pay later operators face an existential threat as rising interest rates and a worsening economy means they will struggle to maintain the support of fickle, or “confidence sensitive” equity investors.
That’s the conclusion of global credit rating agency Moody’s, which says the harsher economic conditions have exposed inherent weaknesses in the BNPL business model.
Moody’s says harsher economic conditions have exposed weaknesses in the BNPL business model. Attila Csaszar
The agency said in an 11-page report that while it expected buy now, pay later transactions to grow, the operating and financing challenges have “put independent BNPL businesses on a more precarious footing”.
Moody’s said without stemming losses or raising more equity capital “most major BNPL providers risk depleting their equity within the next two to three years”.
“The next years are therefore pivotal and BNPL players will have to demonstrate their ability to generate positive cash flows,” Moody’s said.
But the agency doubted whether BNPL players can reduce costs whilst maintaining revenues and market shares.
“Achieving promised growth targets while attaining profitability will be a formidable task. If they fail to achieve this they risk liquidation or being absorbed by a stronger competitor.”
The report will come as little surprise to battered investors in the sector that was once a favourite hunting ground for retail investors. Zip Co which held its annual general meeting on Thursday has lost a third of its value this year while shareholders are down about 90 per cent on their investment since early 2022.
In early October, Zip set up a small shareholding facility to effectively buy out shareholders that owned $500 or less of stock.
While Zip’s
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