Member Exclusive

Lending Briefing: Could we see more BNPL consolidation this year?

  • Given the growth and interest in the space, companies have increasingly been looking to get a piece of the BNPL pie.
  • As fintechs mature in their niche markets, larger players might continue to see this as an opportunity and go for it.
close

Email a Friend

Lending Briefing:  Could we see more BNPL consolidation this year?

2021 was an active year for fintech consolidation, so what could this year have in store for us?

When thinking about where M&A fever could strike next, some of the most obvious places to look are marketplaces with a lot of players, hype and money. Hmm, so… BNPL? 

Just yesterday, Australian BNPL firm Zip confirmed that it is in talks to acquire US rival Sezzle, adding to its deal repertoire as it looks to compete with the likes of Klarna and Afterpay in the booming BNPL market.

Given the growth and interest in the space, companies have already been looking to get a piece of the BNPL pie. Last year, we saw Square buy Afterpay in an all-stock deal valued at $29 billion - the largest M&A deal of the year in US fintech. PayPal’s BNPL product Pay in 4 will be joined by an acquisition of Japanese BNPL Paidy in a $2.7 billion deal.

And banks are getting in on this, too. Goldman Sachs acquired BNPL firm GreenSky for $2.24 billion, and will integrate it with Marcus by Goldman Sachs, its consumer-facing business.

As fintechs mature in their niche markets – providing specialist products, establishing wider customer bases and developing their brands – larger players might continue to see this as an opportunity and go for it. 

And this could mean bigger fintechs buying smaller ones, too. Since we’ve been going down M&A memory lane, let’s remember that consumer fintechs are becoming strategic buyers themselves. Digital lender Oportun bought banking application Hello Digit for $211.1 million, and neobank MoneyLion acquired API builder Even Financial for $440 million.

Plus, the recent IPO rush could allow more fintechs to leverage public equity to pursue M&A deals. Public markets have been thrashing many fintech companies, but some fintechs have seen growing valuations. There’s a financial incentive to use their higher multiples to acquire a lower-valued target – for example, Oportun used around $98.5 million in stock and $112.6 million in cash to buy Hello Digit. 

This could also pave the way for bigger BNPL players like Affirm to absorb the smaller folks. After all, it is getting pretty crowded on that checkout screen, and big BNPL platforms can only grow so much organically through merchant partnerships.

“There’s limited real estate for all these BNPL platforms trying to get integrated into merchants,” Alex Johnson, director of fintech research for Cornerstone Advisors, told The Financial Brand. “There are not many ‘blue ocean’ opportunities left.”

These constraints might lead bigger players to look for new avenues of growth, and acquisitions tick many of these boxes. But they’re not the only way forward.

Take a look at Stripe and Klarna, who engineered a growth strategy in an ‘I’ll scratch your back if you scratch mine’ sort of way. 

The two fintechs formed a strategic partnership at the end of last year where both companies can expand their product offerings – Stripe adds flexible payment options to its repertoire, while Klarna gets access to new markets and customers. 

In any case, given the attention this space is getting, it’s likely we’re going to see more strategic activity and consolidation this year.

Chart of the week

It seems like online isn’t gonna cut it anymore. People want finance at their fingertips- - literally.

According to a recent survey by the consulting firm West Monroe, half of small-business owners want to apply for a loan or account on a mobile app, compared to the third that opted for online experiences. 

digital first lending

“Historically, banks have been trying to serve small-business customers using technology, operating models and credit policies more aligned with larger commercial customers,” said Roger Taylor, a director in the financial services practice at West Monroe. “Small-business customers recognize this, and it frustrates them.”

Quote of the week

Building on last week’s briefing on the evolving credit score landscape, I wrote a more in-depth article on fintechs with alternative methodologies to FICO that want to help more people build credit. But one important thing to keep in mind in this conversation is that at the end of the day, we’re talking about data and algorithms measuring people’s lives. 

Kathy Wood, a mathematician who worked on such algorithms on Wall Street, raised the issue of ethics and over-reliance on mathematical models used in financial services in her book Weapons of Math Destruction.

Here’s an excerpt from a chapter that explores the credit industry, an important reminder that for all the advancements in technology, it’s still people at the other end. 

“When automatic systems sift through our data to size us up for an e-score, they naturally project the past into the future. As in recidivism sentencing models and predatory loan algorithms, the poor are expected to remain poor forever and are treated accordingly – denied opportunities, jailed more often, and gouged for services and loans. It’s inexorable, often hidden and beyond appeal, and unfair. 

Yet we can’t count on automatic systems to address the issue. For all of their startling power, machines cannot yet make adjustments for fairness, at least not by themselves. Sifting through data and judging what is fair is utterly foreign to them and enormously complicated. Only human beings can impose that constraint.”

What we’re reading 

  • (Fin)Tech for good: how innovative financial services solutions are improving financial inclusion (Maddyness)
  • Experian’s Future of Fraud 2022 Forecast (BusinessWire)
  • Customers Bank teams with fintech on small-business loan software (American Banker)
  • What is paycheck-linked lending? (Argyle)
  • A blog on Kard, a “rewards-as-a-service” fintech that allows card issuers to embed rewards programs (underscore)
  • They promised quick and easy PPP loans. Often, they only delivered hassle and heartache. (ProPublica)

What we’re writing 

0 comments on “Lending Briefing: Could we see more BNPL consolidation this year?”

10-Q, Member Exclusive

The debt ceiling deal may have saved the US from defaulting on its debt, but where does this leave the stock market?

  • The passing of the bill may have saved the immediate trouble of defaulting but it could be months before investors and the stock market regain their stability.
  • SoFi stock rose nearly 31% in the past week because of the new debt ceiling deal.
Sara Khairi | June 05, 2023
10-Q, Member Exclusive

Who will succeed James Gorman at Morgan Stanley?

  • Morgan Stanley's James Gorman is calling it a day. “No plans to go out like Logan Roy,” the fictional CEO from HBO’s Succession, he says.
  • Wise shares dropped nearly 7% Thursday after the firm announced this week that its CFO, Matt Briers will be stepping down in March 2024.
Sara Khairi | May 30, 2023
10-Q, Member Exclusive

Guilty or not guilty: Deutsche Bank is ready to pay $75 million in Epstein settlement

  • Deutsche Bank hasn’t come clean about its involvement with the Epstein crime. However, the bank addressed the situation by saying that it has strengthened and invested in its anti-financial crime controls.
  • Upstart is up almost 80% in 2023 so far. The news of multiple funding agreements being worked on by the company rebounded the stock nearly 47% in a week.
Sara Khairi | May 22, 2023
Banking, Lending, Member Exclusive

Unlicensed lending, misleading practices, and legal actions: Is SoLo Funds in trouble?

  • Attorney General for the District of Columbia and the California DFPI have penalized SoLo Funds for breaching a number of consumer protection laws.
  • The DFPI also issued a consent order for the Black-owned firm, which is raising eyebrows and more questions.
Sara Khairi | May 17, 2023
10-Q, Member Exclusive

Robinhood’s losses override revenue, PayPal’s stock dips, while Dave delivers more than expected in Q1

  • Everything investors need to know about Robinhood, PayPal, and Dave’s Q1 2023 earnings.
  • Some important fintech stocks are on the path to recovery, while others crashed on Q1 earnings.
Sara Khairi | May 15, 2023
More Articles