Afterpay shares (APT.AX) have soared an astounding 740 per cent during Covid-19, cementing billionaire status for founders Nick Molnar and Anthony Eisen.
But the upwards trajectory isn’t limited to just Afterpay: a new report from IBISWorld predicts the Buy Now Pay Later (BNPL) industry will continue to grow as much as 9.8 per cent annually over the next five years to $1.1 billion.
“Covid-19 is expected to increase the unemployment rate, and contribute to weaker consumer sentiment and lower real household incomes in 2020-21, spelling disaster for the retail sector. However, BNPL service providers are likely to benefit from consumers using industry services for essential items,” IBISWorld senior industry analyst, Yin Yeoh said.
Some Australians have used BNPL to purchase essential items including clothing and groceries, IBISWorld noted.
As it stands, Afterpay has a market capitalisation of $17.7 billion after shares jumped from $8.90 on 23 March to more than $70 per share in July, taking Afterpay to just outside of the ASX top 20.
“With bank accounts running dry, more consumers are likely to look into BNPL options. The ability to shop now and pay for it later is very attractive for consumers struggling financially,” Yeoh said.
IBISWorld predicts the BNPL industry will grow 9.1 per cent in 2020-21, taking it to $741.5 million as online shopping revenue is also predicted to grow 6.4 per cent this year to $31.2 billion.
BNPL platforms like Afterpay, Klarna and Zip Pay are expected to reap a slice of this growth, IBISWorld said.
It comes as Australians increasingly shirk credit cards: Reserve Bank of Australia data shows the number of credit cards used has fallen by 6.6 per cent in the last financial year.
In May alone, Australians dumped more than 100,000 credit cards, taking the number of cards in operation back to levels not seen since 2009. There are now 14.23 million in circulation.
“The credit card market has lost ten years of growth – or 2.3 million cards – in just the last two years. This represents an incredible shift in consumer behaviour away from plastic,” Graham Cooke, insights manager at Finder said.
“With no-interest services such as AfterPay and Zip Pay more popular amongst younger generations, and no-fee debit cards routinely offering perks like $0 international transaction fees, the future looks bleak for credit cards.”
However, that doesn’t mean BNPL services are a perfect solution for cash-strapped Australians.
Mozo research released in May found nearly 2 million Australians are worried about how they will pay off their BNPL debts.
It found 69 per cent of Australians who use the platforms consider themselves “financially stressed”. The services don’t generally charge interest, but will administer a fee if repayments are later.
"Buy Now Pay Later can be a good way to manage your cash flow, but before you make a purchase, weigh it up and ensure it suits your financial situation," Mozo director Kirsty Lamont said.