Australian BNPL firm Openpay hits pause on U.S. market as interest rates climb (updated)

Openpay

01/07/2022 24:21

* Openpay to 'materially' reduce U.S. workforce
    * BNPL business model in danger as interest rates climb

 (Writes through)
    By Byron Kaye and Sameer Manekar
    July 1 (Reuters) - Openpay Group  OPY.AX , an Australian
buy-now-pay-later (BNPL)
firm, has halted operations in the United States four months
after describing it as its main growth market, the latest
casualty among consumer finance startups as rising interest
rates bite.
    Investment in an "Americanised" platform caused Openpay's
losses to widen 65% in the first half and the company had wanted
an investor to help fund its U.S. expansion. 
    But current economic and market conditions and "the likely
ongoing capital investment required," has forced Openpay to stop
extending loans and cut most of its U.S. unit's staff, it said
in a statement.
    The BNPL business model emerged out of a very low interest
rate environment which enabled the industry to raise funds at
relatively low cost and offer point-of-sale loans to customers
on online shopping websites. 
    But rising interest rates have put that business model in
danger.  urn:newsml:reuters.com:*:nL8N2XV4A5
    "These businesses are clearly unprofitable, and in order to 
reach profitability they need to grow, but in order to grow you
need more capital and rising interest rates increase their
funding cost," said Tom Beadle, an analyst at UBS. 
    Rising rates also put "pressure on household budgets, and
that increases the likelihood of a consumer to default," he
added. "They get hit on both sides."
    Zip Co Ltd  Z1P.AX , owner of the U.S. Quadpay brand, and
Sweden's Klarna, one of the largest BNPL companies, have also
downsized as climbing interest rates squeeze retail spending and
investor risk appetite.  urn:newsml:reuters.com:*:nL8N2XV4A5 
    Sezzle Inc  SZN.AX , another Australia-listed BNPL firm
focused on the United States and which Zip is buying, has said
it was cutting a fifth of its workforce there. Brighte, an
unlisted Australian BNPL firm specialising in solar energy, told
Reuters it cut 15% of staff this month, after cancelling plans
to sell its own battery network.
    Other consumer finance startups have also been hit by
fundraising woes. Australia's first online-only bank, Volt
Bank, said this week it was shutting down.  urn:newsml:reuters.com:*:nL4N2YF3NA
    Shares in Openpay rose by one-third to 15.5 Australian cents
by mid-session but are still down 80% since January.
    ($1 = 1.4531 Australian dollars)

 (Reporting by Byron Kaye in Sydney and Sameer Manekar in
Bengaluru; Editing by Subhranshu Sahu and Edwina Gibbs)
 ((byron.kaye@thomsonreuters.com; +612 9171 7541; @byronkaye;))