Is this the end of the BNPL boom?

When the economy was booming, the buy now, pay later space thrived. But as inflation and interest rates climbed, consumer-focused players in the space have struggled with increased defaults amid less discretionary spending.

Citing economic turbulence, Affirm announced last week that it was reducing its staff by 19% and shutting down its crypto unit. It also missed analysts' estimates on revenue and earnings; Affirm's stock plunged on the news, lowering its valuation to under $3.7 billion. (When it went public in 2021, its valuation was $12 billion.) Swedish BNPL giant Klarna has also taken a massive hit to its valuation, coming in at $6.7 billion in July, down 85% from June 2021.

Morgan Stanley downgraded Affirm's stock last week as well, saying the company's offerings "are too large given narrow incremental benefits"

In September, the Consumer Financial Protection Bureau issued a report suggesting that companies like Klarna, Affirm and Afterpay, which all allow customers to pay for products and services in installments, must be subjected to stricter oversight. The report may have been too little, too late; many are concerned that BNPL does not constitute responsible lending, and it's hard to tell whether the model itself is sustainable in the long term.

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In a July 2022 report, Fitch Ratings noted that some of the largest BNPL providers had seen delinquency rates more than double over the previous few quarters, while credit card delinquency rates were relatively flat, "underscoring the BNPL's lower asset quality," according to the report.