Stock Groups

‘Buy now, pay later’ stocks tumble on US regulatory probe

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A smartphone displays the Afterpay logo.

Igor Golovniov – SOPA Images | SOPA Images | LightRocket | Getty Images

After the U.S. Consumer Watchdog, shares of many “buy now and pay later” companies fell sharply opened an investigationIn the sector

Thursday’s statement by the Consumer Financial Protection Bureau stated that it sought information from Affirm, Afterpay, Klarna, PayPalAnd ZipDescribe the benefits and risks of your products.

BNPL services let shoppers defer payment for items, typically over a period of monthly installments and with no interest attached — though some do charge hefty late payment fees.

The CFPB expressed concern about the potential for consumers to rapidly accumulate debt via BNPL plans and a dearth of regulatory disclosures.

Several BNPL firms saw their stocks fall following the announcement. American-based Affirm shares fell by 11% on Thursday. Australian businesses Afterpay and Zip were also affected. SezzleOn Friday, the drop was 8%, 10% and 6%, respectively.

After the coronavirus pandemic, investors flocked to BNPL stocks in the last year.

Klarna and Affirm were greatly helped by a shift of consumer attitudes towards ecommerce and flexible loans. This was in addition to huge government stimulus package.

Major tech companies, such as PayPal, have benefited from this trend. BlockJump into BNPL in an effort to profit from the industry’s rapid growth.

PayPal introduced its own BNPL offering in the latter part of last year. Block, formerly Square, announced a deal worth $29 billion to buy Afterpay.

However, the tide is turning in 2021. Zip has fallen 25% and Afterpay shares dropped over 30% from the beginning of the year. Sezzle stock has seen more than half its value in the past year. Affirm is still one of the few BNPL companies that are in the green, having debuted earlier this year.

The sector’s increasing losses have alarmed market players.

Zip’s loss before taxes soared from 20.6 millions Australian dollars to 724 million Australian Dollars in the previous year. Afterpay’s full-year results showed a loss of 194 million Aussie Dollars, as compared with 26.8 millions in 2020.

Analysts warn that regulation may be a significant headwind in the future of the industry. Christopher Brendler (an analyst at D.A. CNBC interviewed Davidson in September about how a regulatory response could slow down the growth of the BNPL industry.

The government in the United Kingdom is planning to introduce regulationBNPL. Financial Conduct Authority will oversee the new industry. This authority regulates all financial services companies in the country.

The Treasury Department of Britain is currently consulting with BNPL companies and other stakeholders in order to help inform its plans. The consultation closes on January 6, 2022.

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