With the market’s loss of faith near total, the once-loved sector is now facing its most serious existential threat. Not only are higher funding costs and rising bad debts posing a terminal threat to BNPL’s already thin margins, but the honeymoon granted to them by regulators around the world appears to be coming to an end, as mega-tech competitors once again plot an assault. Not only was BNPL fast-growing, but as a lender of money it was also exposed to consumer credit higher interest rates would result in more customers not repaying, and the losses would be forced onto shareholders.Īs this year has progressed, sentiment around the sector has only gotten worse. The war in Ukraine was the final straw, snapping already jittery bond markets that panicked as the inflationary threat morphed into a full-blown crisis.įast-growing tech stocks, market darlings of the past two years, bore the brunt of the savage U-turn in sentiment – and none more so than the once coveted buy now, pay later sector.
Official rates would start to rise, asset prices would fall, funding costs would go up, and consumers across the world would start to feel the pain. Inevitably, central banks would heed Gorman’s warnings and unwind their “emergency” settings.
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Zip was on notice that the expansionary mindset that had driven buy now, pay later from Australia to North America and Europe would soon need to flip to one of capital preservation and risk aversion. “We have to shift our thinking.”ĭiamond had received an early warning. “There are some clouds gathering on the horizon,” Diamond told him. The investment bank had begun trimming risk on its trading desks, while Gorman’s line into the US Federal Reserve delivered a clear message: start lifting interest rates, before it’s too late.Īfter the meeting, with Hockey still by his side, Diamond called his co-founder Peter Gray, who was holding the fort in Sydney. He saw early signs that inflation – absent from the developed world for a decade – was returning with a vengeance. Diamond had ambitions to expand Zip’s presence all around the world.īut Gorman’s message from his tower office was not one of ambition, but caution. Dominic Lorrimerįor more than an hour, Diamond told Morgan Stanley’s James Gorman about how Zip, the start-up he co-founded in the eastern suburbs of Sydney, had ridden the global buy now, pay later wave. Zip Co was founded by Larry Diamond (pictured) and Peter Gray in 2013. He was there to meet another Australian, and another finance chief executive, but one that had reigned over Wall Street for longer than a decade. With former treasurer and US ambassador Joe Hockey by his side, the 40-year-old co-founder of Zip Co walked along a corridor where portraits of America’s captains of industry lined the Mahogany-panelled walls. On a cloudy New York morning last October, Larry Diamond made his way up to the 42nd floor of Morgan Stanley’s headquarters near Times Square.
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