Is Afterpay (ASX:APT)'s BNPL competition heating up?

Afterpay Ltd (ASX:APT) and other buy now, pay later (BNPL) providers are facing increasing competition in their space. How big is the threat?

Red paper plane zooming ahead of an army of white paper plane competition

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Afterpay Ltd (ASX: APT) share price had a fantastic day today. Afterpay shares closed the day up by 7.53% at $115.26. However, if you pull back just a little bit, the picture is not nearly as rosy. Afterpay shares are still down around 25% over the past month after making a new all-time high (of $160.05 a share) back on 10 February.

Afterpay's rival Zip Co Ltd (ASX: Z1P) hasn't been so lucky. Zip shares dropped 3.87% today to $8.44. Over the past month, Zip has lost a hefty 21.5%, and more than 40% since reaching a new all-time high on 16 February.

As we discussed earlier today, Zip shares haven't been feeling the love from several brokers in recent weeks, with UBS slapping a sell rating on Zip just this morning.

It also seems to be the case that sentiment from the US in regards to the tech sector over there has been spilling into the ASX. Some itchy investors might have been quite keen to get some of their profits off of the table as well, given the success these companies had earlier in the year.

BNPL competition heats up

But perhaps another threat is also emerging: competition.

At least until now, it could be said that investors are treating buy now, pay later (BNPL) as a magic pudding of sorts. Since it's such a high growth area, most new entrants into the space have been arguably awarded very generous valuations and scope by the market. 

But perhaps this sentiment is drying up. BNPL, despite being a high growth area, is also a relatively low-margin business. Each BNPL company clips the ticket on transactions going through its network, helped of course by some late fees along the road. But as competition increases, these margins might be whittled down to a level more similar to that of the debit card space.

We already know that the ASX BNPL space is a little crowded. We have Afterpay and Zip, as well as others like Splitit Ltd (ASX: SPT), Openpay Group Ltd (ASX: OPY), Humm Group Ltd (ASX: HUM) and Laybuy Holdings Ltd (ASX: LBY). Then there's Commonwealth Bank of Australia (ASX: CBA)-backed Klarna, as well as American Express Company's (NYSE: AXP) new instalment feature.

And, according to a report in the Australian Financial Review this morning, US e-commerce giant PayPal Holdings Inc (NASDAQ: PYPL) will also finally be rolling out its 'pay in four' instalments option for Australians in June. It announced this new feature last year.

That's a group of companies that will have the potential to deliver a massive amount of competitive pressure to the entire sector. No wonder some investors are getting jittery!

Sebastian Bowen owns shares of American Express. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO and ZIPCOLTD FPO. The Motley Fool Australia has recommended Humm Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Technology Shares

rising asx share price represented by drone flying in the air
Technology Shares

What's happening with Droneshield shares today?

In the last two trading days Droneshield shares leapt 19% then tumbled 16%. So, what’s happening today?

Read more »

A man looking at his laptop and thinking.
Technology Shares

Guess which ASX 200 founder just sold off $18 million worth of company shares

Should investors be worried about this share sale?

Read more »

A skydiving man in a jester hat and carrying a burger and sauce, pokes out his tongue at the camera, indicating all is not lost when you're falling.
Technology Shares

Why is the Droneshield share price crashing 19% on Monday?

Investors are sending shares in Droneshield down 19% in morning trade.

Read more »

A woman holds her hand out under a graphic hologram image of a human brain with brightly lit segments and section points.
Technology Shares

1 ASX artificial intelligence (AI) stock that could help turbocharge your portfolio

Analysts at Goldman Sachs are raving about this AI stock.

Read more »

a group of tech people gather around a computer operated by a young woman while the group looks on in support.
Technology Shares

Brokers say this rapidly growing ASX 200 tech stock is a strong buy

Big returns could be on the cards for owners of this stock.

Read more »

A corporate female wearing glasses looks intently at a virtual reality screen with shapes and lights representing Block shares going up today
Technology Shares

Here are 'blue-sky valuations' for these hot ASX 200 tech stocks

These ASX 200 tech stocks could have huge potential according to analysts.

Read more »

A person sitting at a desk smiling and looking at a computer.
Technology Shares

'You could make a decent amount of money' from this ASX 200 tech stock

This stock could be an underrated play.

Read more »

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
Technology Shares

What's happening with the NextDC share price on Thursday?

NextDC is raising $1.32 billion to accelerate its data centre developments amid the rapid growth of AI.

Read more »