If you’ve invested any amount of money in Australia’s once booming buy now, pay later (BNPL) sector over the past year, you’re probably still cringing every time you open your wallet.
This is especially true for anyone who has bought shares in Australia’s beloved former market. Postal payment (ASX: Z1P) which is currently trading at $1.72, down more than 80% from its all-time high of $12.50 in February last year. So what really happened to Zip Pay and the Australian BNPL sector. How did Zip and the whole industry crash so dramatically and can investors expect prices to recover soon?
According to the general manager of Payment Services and payments industry expert Brad KellyZip Pay and other Australian BNPL providers are expected to experience an “implosion” for the rest of this year.
Indeed, every BNPL company in Australia, including market leaders: AfterPay (now owned by Block) and Zip Pay have yet to make a profit or pay out any dividends. Worse still, the companies suffered heavy losses and accumulated massive debts for years.
Kelly warned investors that BNPL companies are extremely good at marketing and promoting their products, but at the end of the day, the numbers are not in their favour:
“The BNPL as an industry in Australia had a total revenue of $11.4 billion last year compared to credit and debit cards which totaled $750 billion. This gives the sector BNPL a market share of card payments of only 1.5% after 8 years of operation.These companies are tiny and they are not the banking and banking giants that they claim to be.
Kelly continued his warning for the industry:
“BPL is do not the next big thing in payments, and no one is cutting their credit cards and switching to Zip or whatever. It is simply absurd. BNPL is a feature, not a standalone product. The pressure on the remaining players will be immense as interest rates rise and investors expect profits, not empty promises. Most will not survive.
So if you think now is a great time to stock up on discounted Zip stock as the company hits new yearly lows and AFR titles Present the recent merger between ZIP and Sezzle as a boon for business, it might be worth being cautious.
“Zip buying Sezzle is the same as the Titanic buying the Hindenburg – two great disasters together make one gigantic disaster.”
Taking two unprofitable businesses with very low revenue per customer and bundling them ($4.50 per month per customer for Zip and about $2.60 per customer per month for Sezzle) won’t yield much except to drag out the bankruptcy process slow – that argument goes.
When asked if there was any chance that Zip or any of the other providers could expect to recover in the coming months, Kelly replied bluntly:
“It’s not going to happen. 70, 80, 90% of your share price will not be recouped when there is simply no path to profit… Neither the company [Zip or Sezzle] made a profit and never will.
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