Why is the Sezzle share price fizzling 7% on Friday?

The buy now pay, later sector is seeing increased competition just as interest rates rise.

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Key points

  • Sezzle share price drops 7% 
  • The BNPL sector is facing increasing competition, including from global tech giant Apple 
  • Rising interest rates are throwing up more headwinds for Sezzle 

The Sezzle Inc (ASX: SZL) share price is getting hammered today.

Sezzle shares closed yesterday trading for 43 cents and are currently trading for 40 cents, down 7%.

So, why is the buy now, pay later (BNPL) share coming under selling pressure again today?

Interest rates and competition

The Sezzle share price isn’t the only one amongst the BNPL companies doing it hard today.

Global payments provider Block Inc (ASX: SQ2), which acquired Afterpay in January, is down 6.6% at this same time. Openpay Group Ltd (ASX: OPY) is down a somewhat less painful 2.6%.

So why is the Sezzle share price under pressure alongside the wider BNPL sector?

First up, there’s interest rates. Rates are going up across most of the western world for the first time in more than a decade. And as we witnessed with the RBA’s 0.50% rate hike on Tuesday, they have the potential to rise further and faster than most analysts had expected.

With US inflation figures due out today (tonight Aussie time), jittery investors pushed the tech-heavy Nasdaq down 2.8% in Thursday’s trading. If inflation figures come in higher than forecast, it could mean more aggressive tightening from the Federal Reserve.

Higher rates throw up a number of headwinds for BNPL shares, including a likely rise in bad customer debts in a sector already struggling with that issue. Higher rates could also impact customer spending habits, seeing a decrease in demand for Sezzle’s payment services.

Then there’s the rise of some serious competition in the pay via interest free instalments space that’s pressuring the Sezzle share price.

Earlier this week Apple Inc. (NASDAQ: AAPL) announced that it was pressing ahead with its own BNPL service, Apple Pay Later. Apple, one of the biggest companies in the world with a market cap north of US$2.3 trillion, said it won’t charge interest rates or late fees. And the service will be available to any merchants who already accept Apple Pay.

Sezzle share price snapshot

A stellar performer during the first year following the pandemic lows, the Sezzle share price has been heading sharply downhill since last June.

Over the past 12 months, Sezzle shares are down a painful 95.7%. That compares to a full year loss of 5% posted by the All Ordinaries Index (ASX: XAO).

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Apple and Block, Inc. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia has positions in and has recommended Block, Inc. The Motley Fool Australia has recommended Apple. 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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