The Retailer Spring Edition 2023

SPRING 2023

17

‘‘ What does this mean for retailers? BNPL is here to stay. But retailers should be cognisant of challenges in the market. It's possi ble that it could promote impulse spending and, as the sector matures BNPL providers may look to charge higher merchant fees. In the event your BNPL provider fails retailers may need to quickly stand-up an alternative provider to minimize the impact on sales.

Challenges ahead for BNPL BNPL providers have been buffeted by slower consumer spending, higher funding costs, increasing delinquency rates and intensify ing competition. Valuations have suffered as a result. For example, in July 2022, Klarna’s valuation was cut from USD 46 billion to USD 6.7 billion and Affirm’s stock price is down 77% over the past year. Australia’s OpenPay, which only floated in 2019, went into receivership in February 2023 after suffering heavy losses. Many BNPL firms have already started prepar ing for regulation, but the sector will still need to navigate significant change. Ensuring adequate affordability assessments, processes to identify vulnerability, and complying with regulation will take time and require significant resource.

BNPL providers have been buffeted by slower consumer spending, higher funding costs, increasing delinquency rates and intensifying competition.”

Retailers should use scenario analysis and stress testing to understand the potential impact across their business if this did happen. This will support a contingency plan, and give a level of comfort that there are adequate controls and procedures in place to mitigate the situation. For more insight and guidance, get in touch with Jarred Erceg.

Jarred Erceg jarred.h.erceg@uk.gt.com