What's going so wrong for ASX BNPL shares this week?

This international watchdog has given 2 ASX BNPL shares a slap on the wrist.

| More on:
Sad woman with her hand on her head and holding a credit card.

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

Key points

  • 2 ASX BNPL shares were caught up in a sweep of terms and conditions within the industry brought about by the United Kingdom's financial watchdog this week
  • The watchdog stated that, while it can't yet regulate the industry, it can hold participants to standards of consumer fairness
  • All BNPL companies involved voluntarily changed their terms and conditions and, if applicable, refunded impacted customers

It's a rough week for ASX buy now, pay later (BNPL) shares amid news from the United Kingdom.

The nation's financial watchdog asked Openpay Group Ltd (ASX: OPY) and Laybuy Holdings Ltd (ASX: LBY) to change "potentially unfair and unclear" terms in their contracts on Monday.

Let's take a closer look at what might have weighed on some ASX BNPL shares this week.

Has this UK watchdog impacted ASX BNPL shares this week?

4 BNPL companies operating in the United Kingdom – 2 of which are listed on the ASX – were addressed by the nation's Financial Conduct Authority (FCA) over concerns regarding their terms and conditions.

Laybuy, Openpay, and Clearpay all voluntarily changed their contracts and refunded customers impacted by the 'unfair' terms this week.

Non-listed BNPL company Klarna was also caught up in the regulator's sweep. Though, as it doesn't charge late fees, it had no need to issue refunds.

FCA executive director of consumers and competition, Sheldon Mills said the body can't regulate BNPL firms yet, but it can hold them to other standards.  

"The 4 BNPL firms we have worked with have all voluntarily agreed to change their approach," Mills said. "We welcome this and hope that the rest of the industry will now follow."

One issue flagged by the watchdog was how the BNPL companies dealt with returned purchases.

It stated some customers had been forced to continue payments or charged late fees if a retailer took their time when reporting a return to a BNPL provider.

Additionally, the FCA found that the BNPL providers' terms and conditions allowed too much leeway when cancelling or suspending accounts and didn't let customers deduct money owed by the provider from their debts.

Finally, it was worried the contracts didn't clearly state how customers can cancel a provider's ability to take money from their debit or credit cards.

According to reporting by the Guardian, an Openpay spokesperson said the company welcomed the FCA's insights and would welcome "fair and appropriate regulation" in the United Kingdom.

The publication also stated Laybuy has flagged its preference for direct regulation from the FCA.

Alex Marsh, head of Klarna UK, commented on the regulator's action, saying the company welcomed the FCA's oversight and implemented the proposed changes to their terms and conditions in September 2021.

"We continuously review our Ts&Cs including working with Fairer Finance, to ensure that we are communicating in the most clear, fair, and transparent way," said Marsh.

"We have never received a customer complaint specifically related to these Ts&Cs but are always open to ways in which they can be improved."

What else might have weighed on the BNPL sector?

Other news that could have dragged on ASX BNPL shares this week include interest rate fears and the technology sector's performance.

As The Motley Fool Australia chief investment officer Scott Phillips told Nine's Late News on Sunday, markets have been concerned about rising inflation, which could drive up interest rates.

As previously reported by The Motley Fool Australia's Zach Bristow, rising interest rates are generally bad news for the tech sector, within which BNPL shares are often grouped.

Additionally, the tech-heavy Nasdaq Index has slumped 3% over the last 5 sessions.

The S&P/ASX 200 Info Tech Index (ASX: XIJ) has also slumped 1% this week while the S&P/ASX All Technology Index (ASX: XTX) has fallen 1.4%.

For comparison's sake, the S&P/ASX 200 Index (ASX: XJO) has gained 0.3% in the same time frame.

How have BNPL stocks performed this week?

While the news from the northern hemisphere may not have impacted the share price of both Openpay and Laybuy, they've both ended this week in the red.

The share price of Openpay has tumbled 4% since Monday, while that of Laybuy has plummeted 25%.

And while neither Zip Co Ltd (ASX: Z1P) nor Sezzle Inc (ASX: SZL) were involved in the FCA's findings, their share prices have fallen 8% and 11% respectively this week.

The Block Inc CDI (ASX: SQ2) share price has suffered the least. The owner of Afterpay has seen its ASX-listed stock slide just 1%.

Looking to the United States' markets, the Affirm Holdings Inc (NASDAQ: AFRM) share price has slipped 29% over the last 5 sessions.

Meanwhile, that of Paypal Holdings Inc (NASDAQ: PYPL) has tumbled 12%.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Block, Inc. and ZIPCOLTD FPO. The Motley Fool Australia has recommended PayPal Holdings. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on BNPL shares

A young boy with a sombre face looks down at the zip fastener at the bottom of his jacket as he concentrates on unfastening the clasp.
BNPL shares

Should you buy the 34% dip on Zip shares?

After crashing 34% in a month, what’s next for Zip shares?

Read more »

A worried woman looks at her phone and laptop, seeking ways to tighten her belt against inflation.
BNPL shares

Zip share price feeling the heat from looming BNPL regulations

Australia’s pending BNPL regulations are throwing up headwinds for Zip shares.

Read more »

A wide-eyed man peers out from a small gap in his black zipped jumper conveying fear over the weak Zip share price
Earnings Results

Why did the Zip share price just crash 20%?

Up 275% in a year, Zip shares are getting smashed on Thursday. But why?

Read more »

A happy young couple lie on a wooden deck using a skateboard for a pillow.
BNPL shares

Are Zip shares a sell or could they keep rising?

Analysts have given their opinions on this high-flying stock.

Read more »

A bearded man holds both arms up diagonally and points with his index fingers to the sky with a thrilled look on his face over these rising Tassal share price
BNPL shares

Zip shares rocketed 363% in 2024! Can they keep rising?

Why did this BNPL stock smash the market? Let's find out.

Read more »

A smiling businessman in the city looks at his phone and punches the air in celebration of good news.
BNPL shares

Up 39% in a year, why this ASX 200 stock is forecast to outperform again in 2025

A leading fund manager expects more outperformance from this top ASX 200 stock this year.

Read more »

A businessman stacks building blocks.
BNPL shares

The ASX 200 stock with 'a strong outlook for 2025'

Racing ahead of the benchmark this year, the ASX 200 stock could keep outperforming in 2025.

Read more »

A wide-eyed man peers out from a small gap in his black zipped jumper conveying fear over the weak Zip share price
BNPL shares

Why did the Zip share price just crash 9%?

Investors seem to be singling Zip out for punishment today...

Read more »