Openpay exposes trouble facing the BNPL sector. Picture Getty
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ASX-listed Openpay’s (ASX:OPY) collapse has exposed the problems smaller players face in the Buy Now Pay Later (BNPL) space.
Lower margins caused by higher rates, as well as intensifying competition have forced these players to either merge with a bigger one, or be forced out of the game.
Openpay practically ran out of cash after it failed to generate interest to raise more capital.
On Friday, the company admitted that it did not receive the “funding amounts sought under a Utilisation Notice served under the company’s working capital facility with A H Meydan.”
Unlike most other BNPL platforms, Openpay’s business had targeted the larger essential expenses of healthcare, veterinarian, automotive and home improvements segments.
The platform’s merchants included retailers like Bunnings, National Tiles and Kogan.
The company’s sudden demise yesterday came as a surprise however, given that it had just reported a 59% increase in revenue to $10m just a week ago.
But a deeper look now into that release actually reveals an underlying problem with the business.
Openpay reported that its net cash flow from operating activities was a negative $18.2 million during the quarter. And over the last two quarters, the company had bled a total of $38 million in cash.
This has left Openpay with just $17m at the end of the period, versus the rate of $19m it was burning every quarter.
The BNPL sector has seen significant growth during the pandemic period, attracting significant interest from both consumers and investors.
But higher interest rates and a consumer crunch caused by high inflation left BNPL companies fighting for their lives while trying to convince investors they still have a future as a standalone business model.
The sector’s rising bad debts and losses became more apparent when the pandemic ended, as it faces tougher regulations around the world.
In Australia, a major shakeup has already hit as the new Labor Government sets its sights on a ‘crackdown’.
The new financial services minister, Stephen Jones, said the Albanese government was planning on regulating the industry over the coming few months.
The government’s plan is to put all BNPL companies under the National Consumer Credit Protection Act, a law designed to protect borrowers who use products such as credit cards or personal loans.
For consumers, this new regulation means there will be extra credit checks before they can be registered as a BNPL user.
But fundamentally, most experts believe the biggest problem facing the BNPL sector is that it attracts too many subprime consumers or borrowers.
As there are no prior credit checks on these customers, trying to underwrite subprime consumers in real time has proved to be very difficult, leading to write-offs in the company’s books.
| Code | Name | Price | % 1-Month Change | % 1-year change | Market cap |
|---|---|---|---|---|---|
| PYR | Payright | 0.07 | 57.78 | -58.90 | $14,872,982 |
| SZL | Sezzle | 0.64 | 42.22 | -71.30 | $134,332,054 |
| IOU | Ioupay | 0.07 | 32.65 | -65.79 | $37,770,182 |
| SQ2 | Block | 119.94 | 24.42 | -18.45 | $3,718,021,864 |
| FFG | Fatfish | 0.02 | 23.53 | -55.32 | $21,763,977 |
| DOU | Douugh | 0.01 | 8.33 | -75.00 | $12,770,366 |
| ZIP | ZIP Co | 0.66 | 8.26 | -78.17 | $505,141,471 |
| HUM | Humm | 0.62 | 6.47 | -25.15 | $300,236,050 |
| LFS | Latitude Group | 1.40 | 6.08 | -29.55 | $1,449,707,489 |
| OPY | Openpay | 0.20 | 5.41 | -58.06 | $45,403,853 |
| SPT | Splitit | 0.19 | 2.78 | -7.50 | $101,222,003 |
| NOV | Novatti | 0.20 | -4.76 | -31.03 | $65,994,151 |
| CI1 | Credit Intelligence | 0.19 | -17.78 | -22.92 | $15,447,345 |
| LBY | Laybuy | 0.04 | -32.69 | -80.00 | $9,013,557 |
The sector’s biggest player in Australia, Block Inc (ASX:SQ2), will report its earnings on February 23.
That report will include the results for once market darling, Afterpay.
Meanwhile, other BNPL companies on the ASX have reported their results, which showed the sector might be on the verge of a turnaround.
Here’s some highlights:
Highlights for Q2 FY23:
Zip’s results may have signalled a potential bounce back in the BNPL sector.
The company continues to deliver solid top line metrics with good results across its consumer operations in the core markets of the US and ANZ.
After a 19% increase (vs pcp) in Q2, Zip followed it up with a 12% increase in revenue to $188m.
The company also reported a 22% QoQ increase on transaction volume for the quarter to $2.7b, which was a record.
Transactions for the quarter were also at record numbers as Zip notched a total of 22.6 million transactions.
In Australia, Zip delivered strong revenue growth of 17% YoY as the company signed up new merchants such as Jetstar, Uber and eBay AU.
Highlights for December quarter:
During the quarter, IOU has been finalising launch preparations for its next major product development initiative with a new, short term financing solution for business-to-business purchases.
Additionally, the company progressed negotiations with a leading non-bank financial institution (NBFI) for a bespoke debt facility planned to provide 100% funding ($1.7m) of the new Bridging Loan product being developed with I.Destinasi Sdn Bhd (IDSB).
IOU inked a new strategic partnership agreement with Simplepay Gateway, with the myIOU already going live on the senangPay payments platform.
Looking forward, IOU believes it is positioned for growth and expansion into new markets by leveraging its brand leadership, innovative product development and its secure, scalable technology platform.
Highlights for the month ended 31 December:
For the second month in a row, Sezzle achieved positive Net Income and Adjusted EBTDA.
Sezzle Premium now has over 122,000 active subscribers, with active subscriptions remaining relatively stable during the holiday season.
CEO Charlie Youakim said Sezzle is on the path to profitability, with a well-capitalised balance sheet that does not require additional capital.
“We are now working on additional initiatives to build upon what we have started and achieve positive Net Income and Adjusted EBTDA for 2023,” he added
Highlights for Q4 FY22:
Splitit’s business model is to offer its technology as a white label.
In Q4, Splitit signed a partnership agreement with Worldline, one of the largest global acquirers with over $400 billion in annual MSV.
The company extended its partnership with Google in Japan, while inking a deal with Checkout.com during the quarter. Checkout.com is a large unicorn and one of the fastest-growing payment platforms in the world.
“Splitit’s new strategy has put us on a path to profitable revenue growth,” said CEO, Nandan Sheth.
“Our focus is to execute on the incremental US$2 to US$4 billion MSV opportunity in front of us over the coming years.”
The company says its share of merchant checkout is twice that of other BNPLs.
Highlights for Q3 FY23:
(All numbers in NZ$)
Laybuy has achieved its second highest quarterly GMV result.
The company’s default rate is falling and says it remains on track to achieve EBITDA profitability by year end.
“The investment in credit risk management processes, and the resulting lower group default rate, means that although our GMV was lower than it was in Q3 FY22, it was of much higher quality because a lower proportion of GMV was the result of fraudulent transactions,” said CEO, Gary Rohloff.
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