One of the newest trends in fintech has been the emergence of 'buy now, pay later' (BNPL) companies that have partnered with e-commerce companies, and it has been a successful tactic that increases conversions and ticket size per order. These services let consumers pay for any item through monthly installments with no interest. The growth in this industry has led to fintech companies like Square
Of course, it also means that these BNPL companies are taking on large amounts of credit risk which can end poorly especially in situations of economic distress as we learn in nearly every credit cycle.
So, it wasn't too surprising that regulators are looking into this niche. On Friday, the Consumer Financial Protection Bureau launched an inquiry, asking the largest BNPL companies like Affirm
Affirm is the largest stock in the space and the only pure-play BNPL stock listed on U.S. exchanges. in Affirm's stock opened for trading at $49 in January and in its first month, it reached a high of $132. This was a preview of the stock's volatility as it declined to $60 before making new highs around $170 in November. Since then, the stock is down by 44%
The CFBP is concerned about the lack of safeguards in terms of assessing the ability of consumers to pay and for people to accumulate debt. It also seeks to get more information through disclosures and limits on data harvesting.
Another interesting story to watch is how much of the BNPL's growth was due to the pandemic and stimulus payments that caused a surge in e-commerce spending. One reason to invest in these companies is their potential for growth via expansion, but this may be complicated as regulators in many countries have been discussing the need to regulate the space.
