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Are investors shifting away from BNPL stocks?

  • Investors selling out of growth stocks amid interest rate hike in near future.
  • Regulatory crackdowns are nearing as increasing numbers of BNPL users rack up unaffordable debts.
  • BNPL favourites continue to report strong growth in business terms, but shares are down so far in 2022.

The US and Australian markets have had a turbulent start to 2022 with investors now facing interest rate rises by both the Feds and RBA to address rising inflation.

As a result, tech stocks have faced sharp sell-offs this year as investors sell out of risky assets in favour of stocks tied to economic recovery.

Buy now, pay later providers have more than just interest rate hikes to worry about this year as countries around the world move closer to a regulatory crackdown on the sector.

The UK Treasury unveiled policy options to regulate the BNPL sector in October last year, while the Consumer Financial Protection Bureau said it is working with Australia, the UK, Germany and Sweden on protecting customers from rapidly acquiring unaffordable debts.

Year to date, Zip Co, Afterpay and Sezzle shares are down more than 20%, with Afterpay closing its last day of trade on the ASX down 20.7% YTD.

Despite the poor performance on stock markets, BNPL providers continue growing to record numbers in quarterly performance reports.

Zip Co released its Q2 FY22 results this week including record quarterly revenue up 58% to $167.4m, record quarterly transaction volume up 53% to $2.6bn, record transaction numbers for the quarter up 85% to 22.4m, and Zip’s customer numbers more than doubled year-on-year to 81.8k.

As for what 2022 holds for the BNPL sector, investors will keep their eyes peeled as regulators eye-off a crackdown, while users will continue to reap the rewards and possible unaffordable debts of each provider through the ease of instalment payments.

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