Specialist
Former VP at Affirm Inc
Agenda
- Operating environment for BNPL (buy now, pay later) providers – coronavirus impact and subsequent economic downturn
- Potential delinquencies, collections practices and loss rates in a recessionary environment
- Competitive positioning of Affirm, Klarna, Afterpay (ASX: APT), PayPal (NASDAQ: PYPL), QuadPay and others – threats to traditional lenders such as Synchrony (NYSE: SYF) and Alliance Data Systems (NYSE: ADS)
- Outlook for Q4 2020 and beyond, including potential consolidation on the horizon
Questions
1.
What are the key trends or drivers in the operating environment for BNPL [buy now, pay later] firms?
2.
To what extent has the pandemic been a growth driver for BNPL or even instalment loan-type providers? How do you expect industry growth drivers to evolve?
3.
How could we approach quantifying the impact of coronavirus on industry growth rates?
4.
Can you elaborate on the changes in consumer behaviour you noted amid the pandemic? Have there been any differences in how merchants approach these offerings?
5.
Could you elaborate on your assessment that some of the risk that was forecast heading into the pandemic hasn’t materialised? How do you expect potential delinquencies or loss rates to evolve?
6.
How should we contextualise the increase in delinquencies that occurred amid coronavirus?
7.
How do you think BNPL companies have been adjusting their underwriting models? How has that impacted volumes and loss rates?
8.
How would you position and differentiate the key BNPL players by go-to-market or product offerings?
9.
Larger, better-capitalised peers such as PayPal, JPMorgan Chase, Visa and Mastercard are all rolling out some form of BNPL and instalment lending offering. How might that change the competitive landscape?
10.
Are there any material barriers to entry? Is there a moat for BNPL incumbents to stave off larger players?
11.
How do you expect Klarna’s offering to evolve, particularly in the US? You alluded to the company pivoting a couple of times. Previous Forum coverage has indicated it’s struggled a bit in the US, given some of the drawbacks of its online offering. Do you think it will ultimately succeed in gaining share?
12.
You alluded to some geographic expansion for AfterPay. What are your thoughts on its growth prospects?
13.
You touched on the product types that are required to win offline, with in-store POS [point-of-sale] being a bit fragmented, and some of these card offerings being developed. How do you expect the in-store component to evolve? Do you think anyone will ultimately be successful in capturing share?
14.
Which BNPL company do you expect to be the ultimate winner among enterprise-type merchants?
15.
Do you think merchants will potentially use multiple BNPL providers?
16.
What do you think will ultimately happen to some of the smaller BNPL players such as Sezzle, QuadPay or Bread? Do you expect any consolidation, and how would you grade their ability to compete upmarket?
17.
Which strategic acquirers do you think would make sense for Sezzle or QuadPay?
18.
How do you expect competitive dynamics to evolve between BNPL players and private label credit card names such as Synchrony or ADS [Alliance Data Systems]?
19.
You alluded to a race to build a consumer network. How should we assess the ability to cross-sell customers between merchants or act as more of a lead-generation tool or affiliate marketer?
20.
How should we frame the regulatory risk to BNPL players’ go-to-market strategy or ability to cross-sell?
21.
Do you expect additional regulatory risks for BNPL players, either domestically or internationally?
22.
You indicated BNPLs could be perceived as commoditised, which could eventually lead to pressure on MDRs [merchant discount rates] and co-marketing. Why might Klarna win a merchant vs AfterPay?
23.
Can you outline activity at RFPs and renewals? How should we frame switching costs for merchants?
24.
To what extent do you think RFP activity at renewals would put additional pressure on MDRs?
25.
How might unit economics change across SMB, mid-market and enterprise as BNPL businesses scale?
26.
Do you think any players will eventually be successful in negotiating down interchange payable rates with any of the lenders?
27.
How are BNPL players tackling fraud prevention? Is anyone taking a particularly noteworthy approach?
28.
Can you elaborate on the high sophistication you referenced in the underwriting process? Does any player have an edge?
29.
We discussed Amazon potentially entering BNPL and through its SMB lending, it has real-time access to all the merchants to the platform. Square has the merchant relationship through Square Capital, and the consumer relationship with the Cash App. Given the vast troves of data that a Square, Amazon, or PayPal might have access to, might that give them an edge?
30.
What are your thoughts on margins today relative to terminal margins at scale for BNPL businesses?
31.
Could you outline the typical BNPL customer profile? Is it largely millennials?
32.
Do you think BNPL will stick with an age group or with customers longer term? Would a customer using BNPL eventually move to a credit card if they are going to pay off within 30 days anyway?
33.
PayPal has a two-sided network with global scale, which could be perceived as relatively large advantages for entering BNPL. Is there any reason PayPal won’t eventually dominate the market? Where might its strategy or go-to-market go wrong?
34.
Are there any industry assumptions around BNPL that you think investors should be challenging?
35.
Could you summarise your overall assessment of the BNPL market and its outlook?
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