At this writing, shares of Affirm are down about 15%. In part that’s due to guidance that gross merchandise volumes will slow and that the macro environment is uncertain.
The consumer, of course, is the glue that ties it all together. And Friday morning, U.S. Federal Reserve Chair Jerome Powell warned that interest rates would continue to rise to combat inflation. How that impacts consumer spending remains to be seen, but it may be the reason that buy now, pay later (BNPL) remains a key lure for individuals and families to buy what they need, with relatively low (or no) fees that are seen with more traditional credit products.
The recent spate of earnings results across the BNPL providers that report publicly underscore the fact that BNPL is becoming firmly entrenched around the globe.
Sezzle said in its July update, released earlier this month, that underlying merchant sales (UMS) for July 2022 were up 9.5%, as measured month on month to US$141.2 million. Growth had been driven by the Sezzle Premium subscription program, the company said, where there have been 64,000 active subscribers through the first 75 days.
The company also said in its release that it is preparing to launch a Convenience Fee for U.S. consumers who prefer to use a debit or credit card for installment payments 2-4 through the core pay-in-four product.
“The fee will not apply to the first installment; consumers are still required to pay with a card. Additionally, consumers will have the option to pay via ACH for installments 2-4 for no additional cost,” Sezzle said, adding that “the company expects this initiative to motivate consumers to pay using lower-cost ACH processing, in turn significantly improving unit economics.” That convenience fee will be rolled out in tests toward the end of the current quarter and will be launched during the fourth quarter.
In its second-quarter results, Sezzle said that active merchant count was up 19% year on year to 48,000. Active users gained 18% to 3.4 million, while repeat users were more than 93% of those consumers.
As noted in this space on Thursday, Affirm’s transactions were up 31%, compared to an 8% growth rate a year ago, as the typical BNPL user did three transactions per customer, up from two a year ago. And the company’s filings show that GMV in the fiscal fourth quarter soared by 77% to $4.4 billion. Of the 12 million transactions logged in the quarter, 10.1 million were repeat transactions, the remainder were first-time customer transactions; 85% of customers were repeating customers. Active merchants gained 13% in quarter-over-quarter growth to 234.8 million. As for credit quality, the allowance for losses as a percentage of loans held for investment stood at 6.2% in the most recent quarter, down from 6.4% in the third quarter and up from 5.8% in the year-ago fourth quarter.
In its own earnings results, Block management said that its BNPL platform, which we acquired through the acquisition of Afterpay, contributed $150 million of gross profit, split across Square and Cash App.
In the second quarter, GMV for Afterpay was $5.3 billion, up 13% year-over-year or 65% on a three-year CAGR basis. In a commentary on the call, Chief Financial Officer Amrita Ahuja said that the loss rate on Afterpay is 1%, which is a slight improvement over the first quarter.
In the second quarter, PayPal said in commentary on its earnings call, that it processed $4.9 billion in volume, up 226% year over year with over 22 million consumers using BNPL. CEO Dan Schulman said that consumers had used the service over 100 million times since launch; there are more than 200,000 merchants offering the option.
Schulman said during the call that “We don’t charge any merchant fees. We have no late fees to consumers. We make our money not off of the buy now, pay later but the ‘halo’ impact, which is about a 21% halo impact when somebody uses buy now, pay later. We aren’t dependent on those revenue streams.”
Splitit’s latest quarterly update said that its merchant sales volume of $94 million was up 4% year on year and its 12 Month Active Merchants of 1,300 represented a 31% increase year on year. The average order value, the company said, was “well over $1,000.”
We don’t yet have second-quarter results out for Klarna. But first-quarter results show that 150 million global active consumers represented a 60% jump year over year, with 27 million in the U.S., in turn up 65%. GMV for the quarter was up 19% year on year to $20 billion. The global retail partners gained 37% in the period to more than 400,000. As many as 93% of transactions were from returning users.
The company said in its results that 1 million consumers now use the interest-free “pay later Klarna card” for everyday purchases in Sweden, Germany, and the U.K., driving purchasing volumes up 78% year on year.
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