Affirm bids farewell to the Australian market amidst tough competition in 2023

Print

Email

Buy now pay later providers are facing more pressure as competition in the space continues to grow. In Australia, for instance, several domestic fintech firms and banking institutions are eyeing a market share in the buy now pay later (BNPL) segment. This, coupled with regulatory scrutiny, has resulted in a tougher growth environment in the Australian BNPL industry over the last 12 months.

Owing to the tough market conditions, Australian BNPL provider Openpay entered receivership after failing to obtain working capital from a key financing partner in February 2023. The collapse of Openpay indicated that the 12-month period in 2023 is going to be another difficult year for consumer-focused BNPL providers, especially in Australia, where domestic providers have increased their focus and investment to achieve profitability.

• Zip, for instance, announced that the firm is retreating operations from most of its international markets in March 2023. The shutdown of operations, across different regions, is part of the firm’s strategy to focus more on the Australian market and achieve sustainable profitability from the short to medium-term perspective.

With firms like Zip investing more in their domestic market, they are seeking to regain market share from international players in Australia. This has further driven the competitive landscape for global players in the Australian market. With growing competition, many global BNPL providers are expected to wind down their operations in Australia from the short to medium-term perspective. Notably, the trends have already started to emerge with Affirm bidding farewell to the Australian market.

• In March 2023, Affirm, the United States-based BNPL provider, announced that the firm will no longer offer its BNPL services in the Australian market. Although international expansion has remained a key focus area for Affirm over the last few years, the firm has adopted a different strategy as it seeks to drive sustainable growth and profitability.

As part of its strategy to achieve sustainable growth and profitability, the firm also announced that it will reduce the headcount by 19% in 2023, a strategy that has been adopted by many in the segment.

Furthermore, the firm also announced that it is raising interest rates on BNPL loans. Under the new merchant agreement, annual percentage rates on Affirm loans will increase from 30% to as high as 36%. The change in interest rates means that the consumer cost of borrowing will increase significantly.

Apart from cutting the headcount and increasing the interest rate for borrowers, Affirm is also in the process of renegotiating the fees with merchants. Sezzle, another United States-based BNPL provider, adopted the same strategy in 2022. While significant hikes in merchant fees meant that Sezzle lost out on some of its partners, it also boosted the net income for the BNPL firm. Affirm, with its merchant fee renegotiation strategy, would hope to achieve the same results in 2023.

As part of its growth strategy, the firm is also planning to integrate the Debit+ into the Affirm app. Since the launch of the Debit+ card in 2021, the payment method has proved to be sticky with the customers, as it makes getting loans easier. Consequently, Affirm is betting on Debit+ cards to accelerate the growth of its gross merchandise volume from the short to medium-term perspective.

With Australia closed, Affirm is also projected to increase its investment in the United States and Canadian market in 2023. The deferred payment method is still widely popular among consumers and the trend is expected to continue from the short-term perspective. However, the presence of several players in the segment, including giants like Klarna, will make it difficult for firms like Affirm to drive customer acquisition numbers, and subsequently, gross merchandise value.

Over the next 12 months, PayNXT360 expects more firms to retreat from their international expansion strategy, as the growing competitive landscape and other macroeconomic factors, make it difficult for players to achieve sustainable growth and profitability from the near-term perspective. Consequently, PayNXT360 expects further consolidation in the global consumer-focused BNPL sector. These trends will also present buyout opportunities for well-funded firms in the deferred payment space.

To know more and gain a deeper understanding of the global BNPL market, click here.