Buy now, pay later (BNPL) providers are unlikely to win the battle against established players such as Visa and PayPal if they enter the market, with investors warned it might be wise to exit the market.
According to Wealth Within, the entry of firms such as Mastercard, Visa and PayPal would bring with them significant number of existing clients.
Mastercard had teamed up with Latitude to offer a BNPL service, Visa was working with Splitit while PayPal launched a service called ‘Pay in 4’ which already had 25% of the US BNPL market. Shares in PayPal, in particular, had benefitted from the launch of the service, rising 99% over the past year.
Chief analyst, Dale Gillham, described how the major players had let the smaller ones “take all the risk” and would swoop in now the BNPL practice was established.
“The challenge for companies in the BNPL space is that the big players in the short-term finance and payment gateway system have sat back and let these new fintech’s develop the market and appetite for BNPL. In essence, they let the new players take all the risk and now the big players are beginning to enter this space,” Gillham said.
He suggested if the services from these providers took off then they could be real competition to the established players such as Afterpay and Zip Co. While shares in these firms had risen sharply over the past few years, they could have “had their day in the sun” now.
Over the past three years to 27 November, Afterpay shares had risen 1,824% while ZipCo had risen 784% compared to a rise of 23% by the ASX 200.
Gillham said: “Mastercard, Visa and PayPal are well established in the payments industry, as each has a significant number of clients to market their BNPL service to and if they get it right the new fintech’s will struggle to grow.
“Right now it is too early to tell how much effect these big players will have on this industry, but in my mind young BNPL stocks have had their day in the sun and investors would be wise to think about exiting this space and to come back after the dust settles on this battle.
“In my opinion, these BNPL stocks have had their day and like all stocks in new and exciting areas that have spectacular rises over short periods of time, they eventually come back down to earth.”
Share price performance of Afterpay and Zip Co over three years to 27 November 2020
