Australia-based BNPL operator Openpay’s fall into receivership just days after announcing record quarterly results has put the spotlight on funding challenges for buy now, pay later (BNPL) firms.
Openpay announced a new quarterly record in Q2 of FY2023, growing its revenue to A$10.1million. This was in addition to the total transaction volume (TTV) growing by almost 50 per cent to A$126million, in comparison to the previous 12 months.
Dion Appel, CEO of Openpay was very happy with the results saying: “We are pleased to announce that Q2 has set new records across TTV, revenue and other key leading indicators.
“This is a result of the enduring consumer demand for our differentiated offering of longer, larger payment plans. Our improved revenue margins show that consumers and merchants are willing to pay for that extra value as the cost-of-living increases.”
A downhill decline to suspension
But the celebrations were quickly cut short. On 3 February, Openpay requested to be removed from he Australian Securities Exchange (ASX) “in relation to discussions with its financiers”. This resulted in trade coming to a halt, and new customers unable to make purchases. Although outstanding transactions still needed to be completed.
Though no official reason was given for the reason of these discussions, it is speculated that it was due to an unused A$41million in finance facilities.
In Q4’22, Openpay spent A$18million, leaving it with A$17million remaining. If it continued on its trajectory, Openpay would only survive another quarter before liquidation.
Unfortunately for Openpay, the woes continued. Following the trading suspension, director Yaniv Meydan resigned from the board. Three days later, it was announced that the organisation would enter receivership with Barry Kogan, Jonathan Henry and Rob Smith, partners of receivers McGrathNicol, appointed to oversee proceedings.
Australia’s 7news quoted Kogan with: “An urgent assessment of the assets under our control are underway and we will be working constructively with all stakeholders, to secure the best possible outcome.
“Further information regarding the future of the assets will be communicated after the completion of our initial assessment.”
BNPL operators beware?
When a well-known organisation runs into trouble it is bound to make other companies feel on edge too. But is the concern justified? It depends on their views.
Stuart Neal, former CCO at Pay by Bank app, commented: “The extent to which the larger BNPLs are impacted will be dependent on how diverse their business models have become AND which merchants they choose to work with (a demographic play for the already well-off consumers). Klarna, for example, was born out of Scandinavia where bad debts have been historically lower and socially unacceptable.
“National databases have meant consumer credit information has been accurate and reliable, making decisioning easier. I suspect in this case, there is greater protection against any impending credit crisis, although not immunity.”
Though they may have some protection against a credit crisis, it is not to say BNPL organisations, especially ones based in Australia, are not facing hardships at the moment.
Grant Halverson, CEO of payments consultancy McLean Roche Pty Ltd noted on LinkedIn that fintechs were fighting among themselves.
He pointed out how Afterpay was sold to Block “(now worth nothing)”, Humm has pulled back from BNPL to concentrate on unsecured lending and scraped its merger with Latitude, Zebit delisted from ASX, and “scuttled back to US with $35million in cash”; and finally, Laybuy NZ – plans to delist from ASX and try to keep its cash – now worth $9million market cap.
Is there hope?
Yes, but it could be a difficult. But only because of the business model.
Openpay, according to Nandan Sheth, CEO of BNPL firm Splitit: “When you’re lending to subprime consumers with a very high write-off rate – in some cases 300 to 400 basis points of write-offs – and a super-high customer acquisition cost along with marketing costs, your path to profitability is going to be challenged.”
“Then there are concerns when it comes to bringing in new capital from new investors, because they may not buy into the long-term story, and when you can’t raise capital and you have got warehouse lines from lenders that have a variety of different covenants – you can very quickly hit a covenant – the lender will come in and propose a restructuring of the company.”
Learning from mistakes
The challenges listed by Sheth create hurdles from the get-go. However, taking a more positive approach to the situation, Shyam Pradheep, general manager of Zogo, a financial education platform said: “Just like with any sector of fintech, BNPL companies compete to offer their flexible, innovative services to consumers in the most accessible way possible.
“While this gives emerging companies the opportunity to disrupt the industry and become competitive leaders, the bets they make to get ahead may leave them in a precarious position. When downturns impact a market or company, not all competitors will be able to weather the storm, and some firms may collapse or close their doors. This is the crisis Openpay now faces: how to survive.
“One of the big challenges BNPL companies face in the aftermath of a collapse is learning from competitors’ mistakes and determining how to move forward while serving customer needs in a sustainable and scalable way. They must continue to innovate so that they can outpace increasing inflation and reduced customer spending in economically tumultuous times like these. The future is about adaptability — and luckily for fintechs like BNPL, that’s a key trait of the industry.”
So what’s next? For now, it’s a waiting game. The BNPL operator will remain closed while ‘the receivers and managers will work closely with Openpay’s employees, merchants and customers to urgently determine the appropriate strategy for the business,’ the receivers said in a statement.