BNPL Squared & The Wild West of Crypto - (8 August 2021)

Square's BNPL of Afterpay

Square bought Afterpay in a huge USD 29 billion deal (a multiple of 35 times over sales) to leverage synergy between its digital payment platform and Buy Now, Pay Later (BNPL) model. The all-stock deal is an ultimate form of BNPL too!

In India, BNPL has been the fastest growing e-commerce payment method, projected to grow to a 9% share by 2024. Credit card under-penetration, at just 3% among the lowest in the world, is a big reason. Our young base of users also don't want the hassles of documentation that come with personal loans.

The boom in BNPL raises valid concerns around financial discipline. In a US survey for instance, 27% of respondents report that they are "somewhat" or "very" likely to make a late payment on BNPL. In fact, Australian BNPL apps have bad debts as high as 30% of revenues.

OUR TAKE

The convenience of BNPL may end up encouraging impulsive buying tendencies. A failure to make good will hurt the credit score too. When taking a loan otherwise, the documentation process invariably causes a rethink. It is therefore incumbent on BNPL players to ensure awareness is created, and there is some friction in the loan process.

Embracing Crypto!

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US SEC Chairman Gary Gensler called the crypto industry “ripe with fraud, scams and abuses," and urged for regulations on the asset class, currently at a market capitalization of USD 2 trillion. The opacity and volatility of this asset class has become an area of concern for central banks across the world. It is reported that major crypto thefts, hacks, and frauds totalled USD 1.9 billion in 2020 alone.

Retail investors continue to rush in hoards expecting high returns looking at recent history (Dogecoin has risen ~40x since Dec'20). The concern Gensler expresses around lack of investor protection is a fair one. The reported use of stable coin for money laundering and tax evasion also needs to be investigated.

OUR TAKE

The problem remains that most central banks and financial regulators are not fully recognizing that digital currencies are here to stay. Even those who seemingly accept the new reality have brought only piecemeal regulations. China (which accounts for ~70% of bitcoin supply) meanwhile has started framing its regulations, focused on investor protection, carbon neutrality and financial stability. Regulators and governments should recognise the new blockchain economics and build a global infrastructure to regulate it. And the same applies to the investing industry, to begin the process of educating the investors. 

Who is the Greater Fool?

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History is full of financial bubbles. People speculate on real estate, stocks, coins, even flowers. Why do bubbles happen? The answer may lie in a concept known as the greater fools theory.

"For bubbles to happen you need to get people excited to make them buy the story and invest in the asset class"

William J (Author- Delusion of Crowds)

The Best of What You Thought 

"I'd picked up an alternate perspective on China. They apparently hit zero poverty last year (as per their official measure). This has shifted focus to driving social equality. Levelling playing field in education is seen to be one way of doing that and eliminating superior tuition access is a part of it. "

- Jaibir Sethi on China Ed Tech Sector Curb (1st Aug edition)

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