Buy Now, Pay Later lenders struggle to meet their payments?
Buy Now, Pay Later (BNPL) has become an increasingly sought-after payment option for consumers, allowing them to spread the cost of their order across a series of instalments. Paypal’s entry into the BNPL space, ‘Buy in 4’, recently allowed the company to report a 400% year-on-year rise in volume across the UK’s Black Friday weekend alone. But while these options may be booming in popularity, Andrei predicts that fans of BNPL options may be in for an unpleasant surprise. Seemingly, companies that rely upon their customers meeting their repayment deadlines are often missing their own.
“Fans of BNPL should expect to see some change in the market, with one or two players blowing up due to ‘unforeseen’ levels of defaults”, Andrei says. “These have been masked by high levels of growth. More and more users may be using their services, but behind the scenes some of these companies’ balance sheets aren’t looking so rosy. Watch this space in 2022.”
Uncertainty within the BNPL sector is set to have a positive impact upon fintech and AFMs (Alternative Finance Managers – any arranger or provider of finance that isn’t a bank). “Fund managers ran away scared from AFM and associated fintech, parking their money with banks”, Andrei explains. Surely a redistribution of that market share and capital to fintech and AFMs operating in a more sustainable manner would be a positive in 2022.
Post-Greensill: larger banks’ loss, fintech and AFMs’ gain?
The collapse of supply chain financing firm Greensill Capital in March 2021 has been widely played out throughout the media, lobbying sleaze and all. Investors at Credit Suisse First Boston (CSFB), the investment bank that financed Greensill, were left counting losses of some $10bn after the firm’s main insurer walked away from supplied loans sold via a CS fund to outside investors. Yet while its administration initially proved fruitful to traditional banks, Andrei predicts those dividends will begin to move in the opposite direction in 2022.
“CSFB lost billions with Greensill. Following that, because talk was that most Alternative Finance Managers and Fintechs were either not regulated or lightly regulated, people believed siding with larger banks would be the safer option. We know now that that’s false, because Greensill was just fraud or negligence (whatever you want to call it whilst the jury is still out), and no amount of regulation saves from that”.
AFMs and smaller Fintechs look set to prosper by way of response. If larger lenders were susceptible to these incidents – if not even more so due to the size of the loans sold off by Credit Suisse – then AFMs look likely to offer a more attractive alternative over the coming months. “AFMs are still much better at looking after their customers and continue to innovate at higher pace”, Andrei says. For investors, that personal approach, combined with an agile approach to clients’ needs, looks set to become more valuable and reassuring in a post-Greensill world.
Negative interest rate policy emphasis will create panic
The focus on negative interest rate policy (NIRP), or near-NIRP, will last longer than most people expect, Andrei predicts. NIRP, whereby central banks set their target nominal interest rates at less than 0%, is designed to encourage borrowing and spending. With such policy seen as economically beneficial as it invites consumers to invest rather than hoard, Andrei believes any focus on NIRP or near-NIRP “will result in another panic episode in search for “disappearing” yield”. The outcome?
“Another CSFB situation, or another hedge fund will blow up!” Jokes aside, Andrei points towards the Chinese property market as a prime example of an episode of uncertainty. Chinese giant Evergrande has been plagued by continued liquidity concerns, and now ranks as the world’s most indebted developer. Other developers in the country have also struggled to meet debt repayments.
Developments like these bode well for Alternative Finance Managers. “Yield chasers would be forced to look for expertise and diversity, which AFMs provide”, Andrei explains. 2022 could be a prosperous year for AFMs ready to embrace the impact of NIRP and the new opportunities it creates.