BNPL which stands for buy now pay later.
A couple years ago (around 2018-2019), while I was in Australia, BNPL was already quite a popular concept.
And just like everything that's new, it gets overhyped and the valuation of BNPL companies in Australia at that time shot to the moon. One of them would be Afterpay which has been acquired by $Block(SQ)$ , and the other notable one is called $Z1P.$SPY 20220211 464.0 CALL$
So what exactly are BNPL? Put it simply, it's a poor man's credit card. BNPL allows the users to purchase big ticket items and the payment is usually separated into 3 monthly payments, without any interest charges. The access to this credit is pretty lenient, unlike the usual credit checks required by credit card application.
Does this remind you of something? Subprime mortgages are exactly what BNPL is to consumer credit. We all know how well that went. đ
$Affirm Holdings, Inc.(AFRM)$, another big player in the BNPL industry, recently reported earnings, revenue was up, beating expectations, but at the same time, losses also deepened, much more than your earnings. What is it saying? Clearly, the company is destroying value, growing revenue with widening losses.
Do bear in mind, right now interest rates are still at 0, can you imagine what will happen to these companies once they no longer have access to cheap credit to fund these loans, given to people without any credit history?
Yeap, default rates are gonna skyrocket. BNPL is probably what I would describe as a Subprime consumer credit likened to the 2008 Subprime crisis.
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