One of the key Australian players in the buy now, pay later space, Openpay, has collapsed. The ASX-listed company has called the administrators, let go of staff and been forced to sell its assets to return funds to its creditors.

The buy now, pay later (BNPL) platform has reportedly made  more than half its staff redundant, letting 80 of its 140-person team go. The remaining team members will be working to collect outstanding customer payments, as well as its business-to-business trading. 

Openpay appeared to struggle with funding issues, having previously tried to negotiate an extension to a “$10 million working capital facility with AH Meydan, and to its $30 million corporate debt facility from OP Fiduciary Pty Ltd”, according to the Sydney Morning Herald. While it had secured a $110 receivables facility in November from GCI Funds and Fortress Investment Group, it was unable to contain operating costs as retail sales softened.

What does this mean for customers?

In the meantime, customers are no longer able to access Openpay for new purchases. However, this does not mean their debts have been erased, as those with outstanding balances must still pay the remaining debt.

This news will likely shock its active customer base of over 347,000 users and more than 4,200 businesses (figures from its quarterly update to shareholders in January).

For those Australians who use buy now, pay later companies, you may be wondering what the future of these payment platforms looks like? Is this a sign of the current market, with more collapses to come? Or a one-off incident for a competitor to the big-named brands?

Retail sales are down, inflation is up

The latest data from the Australian Bureau of Statistics for December 2022 shows that Australian retail turnover fell 3.9%.

Ben Dorber, ABS head of retail statistics, said: “This is the first monthly fall in retail turnover for 2022, following eleven consecutive monthly rises.”

“The large fall in December suggests that retail spending is slowing due to high cost-of-living pressures,” he said.

The latest ABS figures show that the consumer price index (CPI) rose 7.8% in the twelve months to December 2022, and 1.9% in the latest quarter. Australians are no-doubt feeling the pinch when it comes to their spending.

“Retail businesses reported that many consumers had responded to these pressures by doing more Christmas shopping in November to take advantage of heavy promotional activity and discounting as part of the Black Friday sales event,” said Mr Dorber.

These figures follow a 1.7% rise in retail sales for November 2022, likely as a result of the Click Frenzy, Black Friday and Cyber Monday sales events. In fact, November has been called the “new December” for peak-Christmas shopping.

What does this mean for BNPL?

Generally speaking, when an innovative product or service emerges, one or more key companies may take the lead in terms of market share and brand awareness (such as Afterpay in this instance), and a range of competitors may follow suit (such as Openpay). When factors like inflation come into play, the adverse effects typically play out with these smaller competitors first.

In a rising-interest rate and high-inflation environment, it’s less likely that people will be opening their wallets. All of these factors are putting pressure on the spending habits of everyday Australians, particularly for the kinds of products that BNPL platforms facilitate the sales of (clothing, electronics etc.) 

That being said, while this can impact retail sales, the delayed-payment function of BNPL paltforms may still encourage some spending, as customers could perceive these purchases as affordable through segmented payments.

BNPL bolstered the retail sector in 2022

If there is trouble in the air for the BNPL sector, the retail industry may have something to say about it.

According to data from the Australian Finance Industry Association (AFIA), buy now, pay later platforms offered $1.5 billion in net benefits for retailers in 2022. These platforms also provided $804 million in cost savings, as well as lower instances of fraud and lower market spend.

The additional benefits of offering BNPL payment options to customers meant that retailers reported better customer retention, incremental sales and larger order sizes. Put simply, Australian retailers should be singing their praises, according to this data from the AFIA.

What does this mean for BNPL?

For a sector that saw sales fall in December of all months, a collapse of the BNPL market could be devastating. This is especially true for smaller businesses, as the AFIA data indicated that use of BNPL payment options could attract new customers, boost revenue, and lower operating costs.   

With organisations like the Australian Retailers Association having a strategic partnership with Afterpay, retailers may rally to protect major BNPL players from going under.