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Should you buy shares in Afterpay or these BNPL players?

The impact of rising trade war tension has trickled down into the ASX, particularly within the tech/growth sector. With this, buy-now, pay-later (BNPL) companies have taken a huge hit. Could this be a unique opportunity to invest in the sector?

What’s happening in the buy-now, pay-later sector?

Here are the key BNPL companies on the ASX:

However, with the payments industry gaining lots of traction in 2019, it was only natural that large incumbents would start to make moves in this sector. Visa recently announced it would begin trialling a BNPL product with selected retailers around the globe, which will empower businesses with more flexible payment terms.

More recently, Commonwealth Bank of Australia (ASX: CBA) surprised investors by announcing its partnership with Klarna. The bank invested $100 million into Klarna’s parent company, Klarna Holding AB, to become its exclusive partner as it expands in Australia and New Zealand.

Though Klarna has no reputation in Australia, it is a global payments provider with more than 60 million customers and 130,000 merchants and offers virtually the same product as Afterpay.

Afterpay

Afterpay is down 11% to $24.17 at the time of writing, from a high of $27.18 two weeks ago. However, the company’s share price skyrocketed 6.1% on Friday after announcing its US metrics, where it added 500,000 customers to its user base and almost doubled its active merchants.

In response to CBA’s investment into Klarna, Co-Founder Nick Molnar emphasised that the millennial generation was shifting away from traditional credit. This is what distinguishes Afterpay from the likes of Klarna, a traditional debt provider with a banking license.  

Splitit

The Splitit share price has dropped 27% in the last two weeks, hitting its lowest ever price on Friday at $0.48.

This is due to the company’s funding restraints. Additionally, its June report revealed that merchant transactions were actually declining from the previous quarter.

Zip

In the last two weeks, Zip’s share price stooped 15% to $2.92 from $3.45.

Despite the impact of weak global markets, Zip has been delivering strong results. In June, the company exceeded all the financial targets it set in FY19. It doubled its transaction volume to $1.1 billion, active users rose 80% to 1.3 million.

Zip also announced that its buy-now, pay-later solution would be offered to all Big W customers, a Woolworths Group Ltd (ASX: WOW) company.

FlexiGroup

The FlexiGroup share price was sitting at $1.88 two weeks ago. It has now dropped 15% to $1.60.

It recently revealed that its buy-now pay-later product, Humm, added 2,000 seller locations in 3 months, taking this total to 15,000 partners. In the month that Humm was relaunched, transaction rose by 22%.

While these metrics paint a great story, FlexiGroup experienced a 22% drop in net profit after tax in its most recent report.

Foolish takeaway

Competition is heating up in the BNPL market. Though Afterpay remains a clear winner with its band of loyal customers, large incumbents with strong business networks and regulatory power could pose a huge threat.

While the BNPL sector is exciting and fast-paced, it’s getting difficult to bet on a category winner. Perhaps you could consider these companies instead.

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Audrey Thehamihardja has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended FlexiGroup Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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