Major Retailers Look To Move In On BNPL As Pure-Plays Struggle

August 15, 2023
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As more Australian buy now, pay later (BNPL) companies run into trouble down under, major retailers in the UK and the US are positioning themselves to take advantage of a weakened playing field.

As more Australian buy now, pay later (BNPL) companies run into trouble down under, major retailers in the UK and the US are positioning themselves to take advantage of a weakened playing field.

Two of Australia’s largest BNPL firms have issued distress signals over the past week, as the sector continues to struggle against bad debts, rising interest rates and lower consumer spending.

On Monday (August 14), Splitit Payments announced that it has applied to delist itself from the Australian Stock Exchange (ASX), after first going public in January 2019.

The company also requested that trading of its shares be suspended with immediate effect until Wednesday (August 16), when an announcement concerning a “significant transaction” will be published.

After hitting a pandemic-era high in September 2020, Splitit stock has since lost about 96 percent of its value. If Splitit is delisted, the number of BNPLs trading on the ASX will have fallen from 12 to only two in little more than a year.

Last week, one of those remaining BNPLs, Zip, announced a restructuring of its senior leadership team, as the company’s two co-founders step down from their current roles.

Cynthia Scott, the previous head of Zip’s Australia and New Zealand (ANZ) business, will become the new group CEO. Scott will replace co-founder Larry Diamond, who will become the CEO of the company’s US business. Meanwhile, co-founder and former global COO of Zip, Peter Gray, has taken over the groups ANZ business left vacant by Scott.

“The change reflects the company's lifecycle and maturity and optimises the leadership structure to deliver on Zip’s strategic priorities and next stage of profitable growth,” Zip said in a statement.

“Importantly, it allows the founders to remain close to the business and our team of Zipsters, in line with their passion for disruption, innovation and getting things done.”

Zip shrinks geographically in search of profitability

As a group, Zip has not been profitable since 2013, although the company reported that its US operations were profitable during November and December last year.

In FY 2023, Zip said its US and New Zealand businesses are on track to exit the year profitably, while its Australia business aims to become profitable in 2024.

However, there are doubts as to whether the company will survive that long, given its current indebtedness and cash burn rate.

In June, Zip announced plans to reduce its debt of $A2.5bn by A$192m. As part of the scheme, it invited A$40m of zero-coupon convertible note holders to convert their notes into Zip shares at just over $12 per share, more than 20 times their market value.

After the note conversion was announced, Zip shares continued to slide, and are now down 97 percent from their all-time high in February 2021.

Over the past year, as part of ongoing cost-cutting measures, Zip has announced divestments or wind-downs in the UK, Singapore, Poland, Mexico, the Middle East, India, the Philippines, Turkey, the Czech Republic and South Africa.

This leaves only its core markets of Australia, New Zealand, the US and Canada remaining, but even in these markets, rising revenue is being squeezed by indebtedness and credit losses.

Grant Halverson, CEO of Australian payments consultancy McLean Roche, said he believes that even in its slimmed-down form, Zip will not survive over the long term.

“They are shuffling deck chairs on a tugboat,” he told VIXIO. “It’s hardly big enough to be a Titanic these days.”

Pure-plays’ loss is retailers’ gain

The continued turbulence in the Australian BNPL market highlights a wider trend towards consolidation in the BNPL market globally.

Last week, VIXIO reported on the retreat of Clearpay, Block’s European BNPL brand, from major markets including France, Spain and Italy.

Clearpay’s weakness offers an opportunity for other large incumbents, such as PayPal, to claim the surrendered territory, but there are also other companies looking to make similar moves.

On both sides of the Atlantic, major retailers are slowly becoming more vocal about their plans to enter the BNPL market.

Over the weekend in the UK, John Lewis CEO Nish Kankiwala told This Is Money that the department store chain is eyeing a move into BNPL.

“I think we will develop a buy-now-pay-later product,” he said. “Especially in the younger generation, people expect it.”

Speaking to VIXIO, a John Lewis spokesperson said she could not reveal any further details about the plans, but she did point out that John Lewis already offers a BNPL-like service known as Payment Plans.

“We work with a responsible lender to offer interest-free credit to help customers spread the cost of big items across home, nursery and electricals,” she said.

“We’re currently in the process of rolling out interest-bearing credit, which offers the option of paying lower monthly payments over a longer period.”

Under the terms of the UK’s incoming BNPL regulations, should John Lewis decide to launch its own BNPL service, it would benefit from an exemption for retailers that offer pay in instalments without third-party credit.

This would differ from John Lewis’s Payment Plans mentioned above, where John Lewis acts only as a credit broker, while the credit is provided exclusively by Creation Consumer Finance.

Last month, however, HM Treasury said it plans to delay the implementation of those regulations, in an effort to ensure that BNPL firms do not decide to exit the UK market at short notice.

In the US, Walmart is set to make a similar BNPL entry. In December last year, CNBC reported that Walmart is aiming to set up its own BNPL service in 2023.

Quoting a source “familiar with the matter”, CNBC said that Walmart will launch the service through ONE, its fintech subsidiary, and will provide BNPL loans using its own credit.

Similar to John Lewis, Walmart currently offers instalment financing for certain purchases, but the credit is provided by Affirm under a partnership that launched in 2019.

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