A case of the BNPL blues (Daniel Harvey Gonzalez/Getty Images)
“Buy now” is the easy part… It’s the “pay later” that gets tricky. Buy now, pay later companies help you sport that $400 Aritzia coat now and pay for it later in monthly installments. BNPLs gained popularity by positioning themselves as trendier credit-card alternatives for Gen Z — with fewer strings attached (think: no interest, just late fees). Now they’re facing serious heat, and they can’t deal with it later:
Boom earlier, crash later… BNPL giants thrived during the pandemic when interest rates were low and stimmy cash was flowing. BNPL loans jumped from $2B in 2019 to $24B last year (a 12X increase). But as the economy soured and IOUs increased, so did BNPL’s blues:
Pain now can mean gains later… BNPL’s looser-than-credit rules helped attract users. But now its lax policies are hurting the bottom line: despite soaring revenues, Affirm’s still unprofitable and Klarna’s losses tripled in the first half as bad debts mounted. Affirm shares are down 75% this year, while Klarna’s valuation dropped 85% in July. Now that BNPL staples face stricter rules (read: higher costs), it may be even more difficult for them to reach profitability short term. But regulation could help them reduce bad debt long term.