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Shares in Australian-listed buy-now-pay-later companies plummet by up to 96%

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Shares in Australian-listed buy-now-pay-later companies have plunged by an average of about 80% compared to peak prices within the past year, driven down by swelling losses and lower-than-expected consumer interest in the product.

While some stocks bounced on Thursday, it came after days of heavy selling that has seen share prices tumble as much as 11.8% in a single trading session.

The chief executive of McLean Roche Consulting, payments analyst Grant Halverson, said 12 BNPL companies were listed on the Australian Stock Exchange – more than anywhere else in the world.

Investors have been willing to overlook the losses run up by BNPL companies in the hope that their growth will eventually make them extremely profitable.

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However, Halverson said a $653m loss announced by big player Zip in August, a dramatic increase from its $20m loss last year, “surprised and even shocked many”.

“The sector lost over $1.05bn in 2021 which has concerned many investors,” he said.

“Most BNPL apps’ 2021 reports were bad, as sales growth declined, credit losses increased and cash burn increased, with a number seeming questionable in cashflow terms.”

In August, Openpay’s auditors said there was a material uncertainty the company could continue as a going concern after an ambitious push into the US and UK resulted in a surge in bad debts.

Openpay will need to raise more money by either borrowing more or issuing new shares, auditor PwC said.

Zip shares have fallen from their peak by 63% while Openpay shares have dropped 78%, according to figures compiled by Halverson.

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He said big player Afterpay’s share price now tracked that of US group Square, which has agreed to buy the Australian company.

IOUpay, which operates in Malaysia, suffered the biggest fall from its peak of the dozen stocks tracked by Halverson, cratering by 96%.

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The next biggest loser was Fatfish Group, which operates in Singapore and plummeted 84%.

Among providers that operate in Australia, Laybuy Group experienced the biggest share price fall, slumping 79%.

In Australia, the lightly regulated sector has also come under pressure from consumer advocates, who are concerned that consumers are racking up unaffordable debts and want the product made subject to the same laws that govern loans.

Last month, the Reserve Bank also said that it wanted to change payment rules to allow merchants to pass on to consumers the fees BNPL providers charge retailers, a move that could make the schemes less attractive compared to credit cards.

And established finance groups are also moving in on the territory of BNPL companies, with PayPal and the Commonwealth Bank entering the market in July and Apple working with Goldman Sachs towards launching its own product.

“Of the 12 ASX stocks, none make a profit and the regulatory threat still persists,” Halverson said.

The five BNPL groups listed in Australia that do not operate here “have all declined the most”, he said.

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He said a report issued by the RBA last month “dispelled BNPL spin” about high user numbers by revealing there were 5.2m active BNPL accounts accounting for $11.5bn in sales a year.

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“The RBA figures also show BNPL spend is flat,” he said.

“This raises the question, has BNPL peaked in Australia?”

Halverson said that globally, all payments systems, including credit card schemes, had enjoyed a five-year run of share price growth that now seemed to be over.

Shares in Visa and PayPal peaked in July and have fallen by 22.5% and 39% since then.

Visa is under pressure over a ban on its cards in the UK announced by tech giant Amazon this month while “PayPal’s shares also dropped 5% in one day from a rating change by one analyst – a sure sign of a shift in investor sentiment,” Halverson said.