“BNPL is likely to face increased challenges from growing competition, higher funding costs and credit deterioration, as BNPL customers tend to be the near prime and subprime cohorts, segments likely to be most impacted by multidecade high inflation.”
BNPL jumped in popularity as a lower-cost option to expensive credit cards. First used for larger purchases, BNPL is now pervasive and a highly competitive sector of Fintech. Meanwhile, as Fitch states, decades high inflation, a faltering economy, and rising interest rates will impact the BNPL sector.
Fitch states that it expects credit losses to rise for consumer lenders broadly. This includes BNPL providers. To quote Fitch:
“Some of the largest BNPL providers have seen delinquency rates more than double over the past few quarters, while credit card delinquency rates are relatively flat, underscoring the BNPL’s lower asset quality. Credit loss comparability is difficult due to differing accounting and reporting conventions. BNPL products could become loss leaders as funding costs and credit losses normalize, leaving BNPL platforms that are heavily reliant on pay in four products more vulnerable to profit pressure and capital erosion.”
Fitch predicts that industry consolidation is in the making as credit card issuers up the competition, and of course, Apple is now offering the Apple Pay Later product with more credit products, like installment loans, in the works.