E-commerce exploded during the pandemic. Recent data shows that most consumers who adapted to make purchases online continue to do so even though many brick-and-mortar options have reopened. The insane uptick in online spending has given rise to an exciting take on consumer lending which means enormous potential for players in the space.
Buy now, pay later (BNPL) is a twist on installment-based consumer lending and has been fueled by upended consumer credit markets. Firms in the space make money by charging merchants a fee to offer small point-of-sale loans that shoppers repay in interest-free installments, bypassing credit checks, empowering the customer with greater spending ability, which highly benefits the merchant.
Like all tech-centric industries, BNPL is evolving quickly. Competition in the space means that not all firms currently riding the BNPL wave will make it to shore. In this article, we’ll take a look at a few of the most promising companies that offer exposure to the flourishing BNPL space.
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Affirm (AFRM) made its debut onto public markets earlier this year in one of the most talked-about IPO’s in history. Affirm priced its shares above the target range at $49 a piece. The stock soared 95% to close its first day of trading at around $97. The stock price surged to an all-time high of $146.90 in February before the broad sell-off in tech stocks combined with an earnings miss caused the stock to tumble to the mid-$ 40’s in May. But over the past few months, Affirm stock has rebounded and seems to have finally found its footing. The stock looks ready to continue its way up with help from management in the form of strategic partnerships.
Rather than targeting individual e-commerce businesses one by one, Affirm set its sights on gaining access to the enormous power offered by two of the largest digital retailers on the planet. The company recently signed blockbuster deals with Amazon (AMZN) and Shopify (SHOP) that will place it at the checkout for countless consumer purchases.
To put it into context, Affirm currently has slightly more than 7 million customers. Shopify has a user base of 118 million, and Amazon has a user base of 200 million. Shopify and Amazon, therefore, present an opportunity for Affirm to grow its customer base by 4,470%.
The company’s guidance (which excludes the Amazon deal) calls for $1.175 billion in revenue for fiscal 2022, implying a growth rate of 35% and prompting analysts to increase their forecasts. The current consensus among analysts is to Buy AFRM. There are 6 Buy ratings, 4 Hold ratings, and 1 Sell rating for the stock.
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Mastercard Incorporated (MA) stands out among peers in the shift to contactless payment. Recent data shows that consumers are spending more on their debit cards and less on credit cards, which is good for MA because they make more per transaction from debit card purchases than those made on credit cards. They also make more on cross-border transactions that come primarily from international travel, which ground to a halt due to the pandemic. But that’s not all the financial services giant has going for it.
The credit giant recently announced that it would be expanding into the BNPL space. Mastercard’s Mastercard Installments program will allow consumers to pay for online and in-store purchases through interest-free installments and will be available in the first quarter of next year, with plans to scale the program through 2022. Users will be able to use the BNPL service at more than 70 million merchants through their lender’s mobile banking app or through instant approval during checkout, according to Mastercard. The product will be available in markets across the United States, the United Kingdom and Australia.
Executive vice president of products and innovation at Mastercard, Chiro Aikat, told Yahoo Finance that the company wanted to provide “greater choice” to consumers with its BNPL offering. Aikat added that the company expects BNPL to gain market share of the payments space from 2.1% in 2020 to 4.2% in 2024.
The consensus among 37 analysts is to Buy MA stock. There are 31 Buy ratings, 6 Hold ratings and no Sell ratings for the stock. A median 12-month price target of $450 represents a 27% increase from the current price.
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Payments giant, PayPal Holdings (PYPL) has built its BNPL business from scratch and is growing it through acquisitions. Most recently, the company bought Paidy, the leader in BNPL in Japan, which happens to be the third largest e-commerce economy in the world. The $2.7 billion (mostly cash) deal is just one of the many acquisitions that puts PayPal at the forefront of the BNPL revolution.
“The acquisition will expand PayPal’s capabilities, distribution, and relevance in the domestic payments market in Japan, the third-largest e-commerce market in the world, complementing the company’s existing cross-border e-commerce business in the country,” PayPal said in a statement on Tuesday.
The current consensus among 47 polled analysts is to Buy PYPL stock. There are 40 Buy ratings, 6 Hold ratings and only 1 Sell rating for the stock. A median 12-month price target of $330 represents a 27% upside from the current price.