Are There Clouds on the BNPL Horizon?

BNPL, Affirm, Klarna, Afterpay, economy

An increase in delinquencies, combined with a slowing economy, could spell trouble for the future of buy now, pay later (BNPL) companies.

That’s according to a report Wednesday (June 1) by The Wall Street Journal, which noted that late payments and other losses have begun to stack up for some of the largest players in the BNPL sector, companies such as Affirm, Zip and Afterpay.

Meanwhile, these companies are seeing their borrowing costs rising. BNPL firms, the report noted, sometimes rely on credit lines that stick to the Federal Reserve’s benchmark rate, which has gone up 0.75 percentage points this year, with signs it could climb further.

Investors have also begun to show more caution. Affirm’s shares were selling for above $170 in November but had fallen to $28.50 Tuesday. Additionally, Klarna has said it is looking to raise $1 billion to reach a $30 billion valuation, lower than the $46 billion it reached last year.

The report said these companies boomed when consumers had more cash, and now find themselves in uncharted waters as savings dwindle and the economy slows.

Last week, Klarna said it would lay off about 10% of its employees — about 700 people — due to the effects of inflation and the conflict in Ukraine.

Read more: Klarna to Cut About 700 Jobs Due to Inflation, War

“I am no stranger to sharing good and bad news,” CEO and co-founder Sebastian Siemiatkowski said in the announcement. “However, today is the hardest one to date. As much as we may like it to be the case, Klarna does not exist in a bubble.”

Klarna unveiled a new business plan last fall, a time Siemiatkowski called “a very different world than the one we are in today.”

“Since then, we have seen a tragic and unnecessary war in Ukraine unfold, a shift in consumer sentiment, a steep increase in inflation, a highly volatile stock market and a likely recession,” he said.