Australian BNPL firm Openpay hits pause on U.S. market as interest rates climb

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  • Openpay to 'materially' reduce U.S. workforce
  • BNPL business model in danger as interest rates climb

July 1 (Reuters) - Openpay Group (OPY.AX), an Australian buy-now-pay-later (BNPL) firm, has halted operations in the United States four months after describing it as its main growth market, the latest casualty among consumer finance startups as rising interest rates bite.

Investment in an "Americanised" platform caused Openpay's losses to widen 65% in the first half and the company had wanted an investor to help fund its U.S. expansion.

But current economic and market conditions and "the likely ongoing capital investment required," has forced Openpay to stop extending loans and cut most of its U.S. unit's staff, it said in a statement.

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The BNPL business model emerged out of a very low interest rate environment which enabled the industry to raise funds at relatively low cost and offer point-of-sale loans to customers on online shopping websites.

But rising interest rates have put that business model in danger. read more

"These businesses are clearly unprofitable, and in order to reach profitability they need to grow, but in order to grow you need more capital and rising interest rates increase their funding cost," said Tom Beadle, an analyst at UBS.

Rising rates also put "pressure on household budgets, and that increases the likelihood of a consumer to default," he added. "They get hit on both sides."

Zip Co Ltd , owner of the U.S. Quadpay brand, and Sweden's Klarna, one of the largest BNPL companies, have also downsized as climbing interest rates squeeze retail spending and investor risk appetite. read more

Sezzle Inc , another Australia-listed BNPL firm focused on the United States and which Zip is buying, has said it was cutting a fifth of its workforce there. Brighte, an unlisted Australian BNPL firm specialising in solar energy, told Reuters it cut 15% of staff this month, after cancelling plans to sell its own battery network.

Other consumer finance startups have also been hit by fundraising woes. Australia's first online-only bank, Volt Bank, said this week it was shutting down. read more

Shares in Openpay rose by one-third to 15.5 Australian cents by mid-session but are still down 80% since January.

($1 = 1.4531 Australian dollars)

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Reporting by Byron Kaye in Sydney and Sameer Manekar in Bengaluru; Editing by Subhranshu Sahu and Edwina Gibbs

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