Friend or foe? Could inflation give ASX BNPL shares a new lease on life?

A cool older woman wearing sunglasses celebrates at her party with a gold balloon.A cool older woman wearing sunglasses celebrates at her party with a gold balloon.

ASX buy now, pay later shares haven’t had the best of years.

To say the least.

But investors haven’t lost interest in the sector.

After all, the BNPL stocks posted absolutely eyewatering gains in the year following on from the depths of the COVID-induced market sell-off.

The ups and downs of the buy now, pay later sector

The Zip Co Ltd (ASX: ZIP) share price, for example, rocketed 872% from 20 March 2020 through to 19 February 2021.

ASX BNPL share Sezzle Inc (ASX: SZL) gained 1,804% over that same 11-month period.

Afterpay, now owned by global payments provider Block Inc (ASX: SQ2), had a similarly strong run.

Concerns over mounting bad debts and rising competition from large rivals began to throw up some headwinds by March 2021. Late last year and into this year, fast-rising inflation and the resulting increase in interest rates also led to speculation that ASX BNPL shares could be in for more pain.

And these concerns have seen share prices smashed.

Over the past 12 months alone, the Zip share price is down 85%, while the Sezzle share price has tanked 88%.

As for Block? It’s down 39% since shares began trading on the ASX on 20 January this year.

But could inflation be a blessing in disguise for the beleaguered pay-by-instalments industry?

Could inflation give ASX BNPL shares a new lease on life?

According to a new report by RFI Global, The Global State of BNPL, fast-rising consumer prices may be a boon for ASX BNPL shares.

The report notes that, “Against a backdrop of soaring inflation, consumers may turn to BNPL for bigger ticket items as well as household expenses.”

According to the report:

Although online retail dominates BNPL purchases – particularly fashion where 1 in 5 online purchases in Australia were paid through BNPL last year – consumers are interested in using it for higher value items such as electrical goods, household appliances and furniture.

RFI reported that 38% of Australian consumers indicated they would use BNPL to pay for everyday expenses such as household bills, while 27% would use the instalment services to pay for their petrol.

The report also revealed that while Gen Z and younger Millennials were the early adopters of BNPL in Australia, “there has been a significant increase in usage among older Millennials and Gen X”.

If that demographic usage continues to expand while inflation prods more consumers to pay via instalments on bigger-ticket items, this should indeed be good news for ASX BNPL shares.

The post Friend or foe? Could inflation give ASX BNPL shares a new lease on life? appeared first on The Motley Fool Australia.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Block, Inc. and ZIPCOLTD FPO. The Motley Fool Australia has positions in and has recommended Block, Inc. 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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