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Fintech

BNPL shares are being smashed as financial counsellors warn they’re becoming a massive problem for some users

- December 6, 2021 2 MIN READ
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The honeymoon for buy now pay later (BNPL) fintechs continues to sour with Zip (ASX: Z1p) shares falling to an 18-month low in Monday afternoon trade, and Afterpay (ASX:APT) dipped 5% to their lowest level in six months before recovering to close 4% down at $94.

Sezzle (ASX: SZL) is among the hardest hit fintechs, down more than 16% to close the day at a 12-month low of $3.17. Zip fell 10% to $4.34.

Some of the smaller fintechs are now more than 70% off their 12-month highs.

The falls in BNPL stocks come as nearly two-thirds of Australian financial counsellors say they are dealing with clients struggling with buy now pay later (BNPL) debts, a new report says.

The Financial Counselling Australia (FCA) report: It’s credit, it causes harm and we need safeguards, is based on survey responses by nearly 250 financial counsellors – around a quarter of the sector nationally.

It found that 61% of financial counsellors said most – or all – of their clients with BNPL debt are struggling to pay other living expenses, and experience financial stress because of their BNPL commitments.

The findings align with 2020’s Australian Security and Investments Commission (ASIC) report which found that one-in-five BNPL users cut back or went without essential items, such as food because they were overcommitted on BNPL repayments.

While many of the fintechs, which have lobbied against regulation to ensure customers have the capacity to pay under the National Credit Code, point to low levels of default on repayments, late payment fees have been a key revenue driver.

But the FCA said its clients and counsellors face major hurdles when they try to address hardship concerns with the BNPL companies.

Wake up call

Financial Counselling Australia CEO Fiona Guthrie said the findings are “a wake up call” about BNPL debt.

“Financial counsellors are seeing people with multiple buy now pay later debts. They are really concerned that so many clients are using the product to cover essentials like food, medications and utility bills,” she said.

“This is very worrying, especially as we head into Christmas which is traditionally a time of heavy spending. Buy now pay later could leave people with a financial hangover come January.”

While the market is now saturated with BNPL providers, the companies involved have been moving into new areas for repayment plans from a pair of shoes to time in the pub, to up to $30,000 for cosmetic surgery or solar panels.

Guthrie said the number of people financial counsellors are seeing with BNPL debts has escalated dramatically.

“84% of financial counsellors surveyed said that about half, most or all clients presented with BNPL debt now. This compared to just 31% a year ago,” she said.

The survey also found industry hardship practices are falling short – clients and financial counsellors are facing significant challenges when addressing hardship with the companies that provide these products.

“Financial counsellors want to ensure BNPL is a safe product for everyone. We know that many people find the product useful, but as our survey shows many people are also experiencing harm,” said Ms Guthrie.

Guthrie wants the Australian government to follow the leads of the New Zealand and UK governments and commission an independent review into the BNPL sector’s legal framework to make it safer for users.

The Financial Counselling Australia report can be found here.