The arrival of COVID-19 in early 2020 has changed life as we know it. The forecast for the year was swept away by the wind as the pandemic spread around the world. the S & P / ASX 200 Index (ASX: XJO) fell 36% between February and March as concerns about the economic fallout rocked investors.
The equity market slowly recovered during 2020, but the recovery has been patchy. While many ASX stocks have suffered directly or indirectly as a result of the pandemic, one sector has soared on the favorable winds of the pandemic. Stock prices have reached record highs as a combination of factors drives up the number of clients. We are, of course, talking about ASX buy now, pay later (BNPL) shares.
BNPL ASX Sector of the Year
The BNPL sector gave the performance of the year with the top five ASX stocks in the sector, generating serious price gains. Let’s take a look at their performance over the past two years:
The number of customers is climbing
ASX BNPL shares saw the number of clients explode during this period. The dual force of the increase in digital consumption and the purchasing power of the millennia has enabled BNPL’s services to move from the niche to the general public in just a few years.
More and more customers are moving away from credit cards in favor of tiered payment solutions offered by BNPL providers. The pandemic has pushed more consumers to shop online, attracting more customers to BNPL solutions.
According to MergermarketBNPL’s Australian revenue was $ 680 million in FY20 and is expected to reach $ 1.1 billion by FY25. Almost 2 million Australians used a BNPL product last year, with BNPL increasing from 3% of e-commerce payments in 2018 to 8% in 2019.
BNPL solutions are gaining ground at the expense of credit cards, which are less popular with millennials. COVID has also drawn more consumers to the BNPL space, both due to the increase in online retailing and as an alternative way to fund purchases.
Profit from ASX BNPL shares
Just look at the customer numbers of ASX BNPL shares to see these confirmed trends.
Afterpay’s 6.1 million active customers in November 2019 had grown to 11.2 million in September 2020. Afterpay shares fell as low as $ 8.90 in the March crash, but staged one of the strongest ASX repeats in 2020, exceeding $ 120. Afterpay now has a market cap of over $ 34 billion and has joined the S & P / ASX 20 Index (ASX: XTL) in the December quarterly rebalance.
Afterpay is the largest BNPL player on the ASX. It reported $ 4.1 billion in underlying sales in the first quarter of FY21, a whopping 119% increase from the previous corresponding period, which recorded $ 1.9 billion in underlying sales. But Afterpay is not the only BNPL player seeing huge increases in customers and transactions. Zip Co saw the number of customers increase to 5.3 million in November 2020 from 1.8 million at the end of 2019. Zip Co recorded quarterly transaction volumes of $ 943.1 million in the first quarter of FY21, a 96% increase over one year.
Likewise, Sezzle reported a customer count of 1.79 million at the end of the September quarter, with transaction volumes of $ 318.2 million. This is a nearly three-fold increase in the number of customers and a five-fold increase in transaction volumes in one year – in the previous corresponding period, Sezzle had 644,509 customers and transaction volumes of only $ 68.8 million.
It’s a similar story for Separate it and Openpay – the number of customers and transaction volumes are increasing rapidly.
Splitit reported a total of 362,000 buyers in the September quarter, with 186,000 active buyers. This was an increase of 48% per year. During the same period, transaction volumes increased 214% to $ 70.9 million.
Openpay had 372,000 active customers at the end of the September quarter, an increase of 145% year over year. Transaction volumes reached $ 68 million for the quarter, up 95% from $ 34.9 million in the first quarter of FY20.
What is the next step for the BNPL sector?
So what’s the next step for the BNPL industry? According to Mergermarket, M&A activity is likely to take place in this space as players seek to consolidate their market share. The number of competitors in the industry has grown over the past two years, with some retailers even offering their own BNPL solutions. Traditional finance players and neobanks are also looking at the space with interest.
While there are niche BNPL providers, there are many players operating in the same space – funding small ticket purchases under $ 1,000. BNPL providers need a critical mass of consumers to use their platform to attract merchants, so mergers would consolidate market share.
BNPL shares performed well in 2018 and 2019, but came of age in 2020 as the pandemic pushes consumers towards digital finance solutions. Regulatory concerns that plagued the industry have so far subsided, with industry players working with the Australian Securities and Investments Commission on a code of conduct.
As the industry matures, there is no doubt that BNPL solutions are here to stay.
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Kate O’Brien has no position in any of the stocks mentioned. Motley Fool Australia’s parent company, Motley Fool Holdings Inc., owns shares of ZIPCOLTD FPO. Motley Fool Australia’s parent company, Motley Fool Holdings Inc., recommends Sezzle Inc. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia Recommended Sezzle Inc. The Motley Fool has a Disclosure Policy. This article only contains general investment advice (under AFSL 400691). Authorized by Bruce Jackson.