Another BNPL Bites The Dust - This Time It’s Fupay

May 16, 2023
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Fupay has become the latest casualty of Australia’s once thriving but now struggling buy now, pay later (BNPL) sector, as firms grapple with higher interest rates and increased funding costs.

Fupay has become the latest casualty of Australia’s once thriving but now struggling buy now, pay later (BNPL) sector, as firms grapple with higher interest rates and increased funding costs.

Fupay, an Australian fintech that entered the BNPL market in 2021, has announced that its BNPL business is set to close.

The Fupay app has been removed from both the Apple App Store and Google Play Store, and Fupay’s entire website has been deleted.

The move follows the acquisition of Fupay by another company in March this year, but the identity of that company remains unknown.

Speaking to VIXIO, Fupay founder Michael Fredericks said the acquirer “does not want to issue press releases” or “engage with the media” until the new business is launched.

Fredericks added that the new company plans to drop Fupay’s business-to-consumer (B2C) services and focus only on business-to-business-to-consumer (B2B2C) services.

A new Fupay platform focused on "lending-as-a-service" will launch later this year, and Fupay’s “core team” will move across to the new company, where Fredericks will sit on the board of directors.

He will be joined there by Jack Gance, founder of Australia’s Chemist Warehouse, which was also an investor in Fupay.

Following the wind-down announcement from Fupay, social media users questioned whether its BNPL business had gone bust, and why the company’s next steps had not been posted to its website.

Responding to the comments, Fredericks said it was “incorrect” to describe Fupay as having “gone under”, though he agreed that it would have been a “good idea” to publish a statement on the company’s next steps.

Brad Kelly, managing director at Australia’s Payment Services consultancy, said the unorthodox nature of the wind-down raises doubts about the nature of the acquisition.

“All I can say is that most successful businesses don't suddenly close down, erase their social media, close their website and make no announcement to the media,” he told VIXIO. “Rather, they usually want to get ahead of the narrative.”

Fupay started as a fintech lender in 2018, and grabbed headlines as it moved from payday loans and salary advances into BNPL.

In March last year, Fupay became the first BNPL to offer loans for the purchase of basic essentials such as milk, petrol and bread through partnerships with IGA, Foodworks and United Petroleum.

Australia’s BNPL market churn

Fupay is the fourth Australian BNPL to close its doors in 2023, following in the footsteps of OpenPay, LatitudePay and Affirm.

In February, as covered by VIXIO, OpenPay became the first Australian Stock Exchange (ASX)-listed BNPL to enter receivership.

Later that month, Affirm announced that it would wind down its Australia business to focus on its core markets such as the US, and LatitudePay announced that it would be closing its BNPL service in April.

LatitudePay traded on the ASX as part of Latitude Group, and Affirm trades on the Nasdaq via its US parent company.

In 2021, the total value of all Australian BNPLs listed on the ASX peaked at $58bn, though as of today, the sector is down almost 99 percent, having lost $57bn in value.

This is due to a combination of wind-downs, divestments from the Australian market and stock price collapses following interest rate hikes and poor earnings.

BNPL headwinds in Australia

Although Fupay has yet to state why it opted to close its BNPL service, payments consultants have said the most likely reason is due to increased funding costs following interest rate hikes.

Grant Halverson, CEO of McLean Roche, pointed out that when OpenPay entered receivership, it was paying up to 18 percent on loans to its own creditors, while offering interest-free credit to consumers.

“Fintech apps are in a world of pain,” he told VIXIO. “Apple, PayPal and the banks have no problems, but fintech apps that went into 2021 with crazy levels of bad debts are now facing high interest rates and it’s a total category killer for apps.”

Kelly agreed with Halverson’s analysis. “BNPL only works when rates are low, there is no regulation and they are well funded,” he said.

“All of these things have all but ceased, forcing BNPLs to fund themselves from alternative (and very expensive) sources, and fees to merchants and consumers have to rise to fill the vacuum left.”

In Australia, the benchmark interest rate currently stands at 3.85 percent, compared with 4.5 percent in the UK and 5 percent in the US.

Regulations coming soon

In addition to increased funding costs, Australian BNPLs are expecting to be affected by new regulations in the near future.

As in the UK, BNPL is not currently regulated in Australia due to an exemption for interest-free credit under the National Consumer Credit Protection Act (Credit Act).

That could be set to change, however, after the Treasury published an Options Paper last November outlining three ways to bring BNPL firms into a more formal regulatory framework.

The three options were: 1) strengthening the BNPL Industry Code plus an affordability test; 2) limited BNPL regulation under the Credit Act, including licensing and unsuitability tests; and 3) regulation of BNPL under the Credit Act.

The Treasury received 78 submissions in response to the Options Paper, including submissions from major BNPL providers Afterpay, Zip and PayPal — all of which supported option 2.

In Kelly’s view, the smaller BNPLs have the most to lose, whether under a system of limited or full regulation.

“Regulating the sector will kill mono-line businesses like Zip, leaving Apple Pay Later and PayPal to run the show,” he said.

“AfterPay will try to roll out CashApp in Australia”, Kelly noted, referring to the popular payments app from parent company Block, “but there is no real benefit to it like there is in the US, where the banking system is disjointed and still reliant on cheques”.

In his firm’s submission, Halverson argued in favour of option 3, with “added enforcement items to ensure full compliance by all BNPL apps and ‘copycat’ providers, especially across consumer issues, key service areas and KYC/AML”.

In response, the Treasury said the feedback will inform a government decision on BNPL regulation in the near future.

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