Buy now pay later (BNPL) has emerged as one of the more exciting innovations in consumer credit in recent years. Many retailers have incorporated BNPL to increase transactions both in e-commerce and at brick-and-mortar stores.
However, it hasn't been a straight-up-and-to-the-right journey for the industry. From the fintech hype of late 2021 to the depths of 2023, BNPL is now coming into its own on a more solid footing and with a clearer growth trajectory.
The team at Third Bridge Group Limited has been following the sector through all of the ups and downs, and this year our conversations with experts have noted several key developments, including:
Competition for retail partnerships - Klarna made a splash earlier this year by displacing Affirm at Walmart ahead of its IPO next month.
Increased BNPL usage and model diversification - Affirm's credit card introduction and other partnerships enabled the company to weather the storm caused by a more aggressive Klarna.
Higher expectations - at one point this year, Sezzle saw its share price increase more than 5x in 3 months, only for it to come crashing down this month, wiping more than 40% off its peak share price. Markets bought some hype, but some expectations are proving too high in the space.
Looking ahead, there are two big questions we are being asked by our clients.
1️⃣ First, public markets are still waiting for the oft-deferred IPO of Klarna, the behemoth in the space, and what might be in store for the sector going forward.
2️⃣ Second, the industry has increased exponentially since the pandemic, but investors want to know how these companies will manage a credit cycle--if the economy slows down or slides into a recession. Banks and credit card companies have decades-long track records on managing credit cycles, but the BNPL companies have yet to be tested in that environment.
Affirm will report its fiscal 2025 full-year results Aug 28, marking what is likely a significant milestone for the company and the industry,the consensus expects positive net income. Investors will be focused on the 2026 guidance that will come with those results, and street expectations see revenue growth slowing from the breakneck speed of recent years. However, the company has hit an inflection point in profitability and Third Bridge experts expect this to continue in the years ahead.
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