Funding freeze hits BNPLs

Investors are putting less cash towards BNPL providers, who already grapple with thin margins.

The buy now, pay later (BNPL) market is taking a walk back, with a handful of BNPL-focused companies having gone bust in just the past few years as investments to the sector slowed.

“In the mature markets, BNPL has stepped back considerably,” Anton Ruddenklau, global fintech leader at KPMG International, told Asian Banking & Finance.

BNPL companies face a corporate paradox: business is booming, with e-commerce adoption expected to grow to 4.1% of all e-commerce payments by 2026. 

Depending on the market, interest is there. About 60% of Filipinos, for example, say they will most likely use BNPL in the next six to 12 months, said Ivan Grytsenko, vice president at Billease. 

But cash remains a core issue for BNPL firms.

“Due to the high interest rates, investors are putting less cash towards BNPL providers and putting more money into other types of technology categories,” Ruddenklau said. “With less cash, that means less advancement, less market expansion, which means fewer customers.” 

Reversal of fortunes
At one point, BNPL was investors’ favorite. The sector commanded over $6.9b in funding in the five years through 2022. In 2021 alone, funding reached a whopping $2.8b, according to data from Fintech Global Research. 

Then, in 2023, high funding costs and a drop in investment capital forced several BNPL providers to fold. In February 2023, Australian BNPL firm Openpay was forced into receivership. Its assets were liquidated nine months later, with the company said to owe creditors $66.1m.

New Zealand’s Laybuy went under in June 2024 after failing to find a buyer. The BNPL firm has also since entered into receivership.

One problem is that despite the billions of funding they’ve received, BNPL companies receive little in return.

“It's a very, very thin margin game for the providers, and they've been suffering some reasonably heavy losses, with high interest rates and low user interest in their product,” Ruddenklau said.

“We've seen a huge amount of loan impairment across the market, and we've seen many of the firms either discontinue or go bust. One of the largest firms out there, Klarna, still suffers very, very significant losses when it comes to BNPL,” he added.
Regulation is also creeping up on BNPL as more players go bankrupt.

“They're very supportive of choice and innovation in the marketplace, but they're also not supportive of firms that cease to exist in the future,” Ruddenklau said. “I think we'll see a lot more regulation around the stability of those firms as we move forward, [and as] the market matures.”

Retail growth
Whilst market performance and investors’ expectations may not have been met, Ruddenklau and Grystenko said the BNPL market still has room to thrive, depending on the market.

Ruddenklau sees a high degree of adoption from consumers. “Some markets, for example in Singapore, at least three quarters of consumers have used some type of BNPL product.”

Meanwhile, Grystenko said customers are opting for longer repayment periods. “We see that short-term BNPL products with 0% interest are shrinking, whilst everything shifts towards midterm with interest rates.”

Repeat usage among mature cohorts is also on the rise, with some using these services three or four times a year, he added.
Grytsenko said BNPL services benefit retailers as well. 

“Retailers who have adopted a variety of financial services have seen significant sales growth with their financing now, accounting for 70% to 80% of sales, compared with just 40% to 50% last year,” he said.

— With reports from Joanne Ramos and Angel Rodulfo