The buy now, pay later (BNPL) sector has revolutionised the way consumers shop and manage their finances. However, the rapid growth of this sector has not been without its challenges. Some BNPL services have found themselves in financial distress, leading to voluntary administration or receivership.
A recent example of this is Laybuy, a once-prominent BNPL service that had to close its doors. This blog will explore the problem of BNPL services being forced into receivership, the steps involved in this process, and the implications for the industry. We will use the case of Laybuy to illustrate these points.
The Rise (and Fall?) of BNPL Services
BNPL services like Afterpay, Zip, and Laybuy have gained significant popularity in the ANZ region, offering consumers a convenient way to purchase goods and services without immediate payment. These services typically allow customers to spread the cost of their purchases over several interest-free instalments. However, the rapid expansion of the BNPL market has also brought about increased scrutiny and regulatory pressure, coupled with mounting competition and financial sustainability challenges.
What is Receivership?
Receivership is a legal process where an external party, known as the receiver, is appointed to manage a company’s assets and operations. This typically occurs when a company is unable to meet its financial obligations and creditors seek to recover their debts. The receiver’s primary role is to protect the interests of the creditors, often by selling off the company’s assets to repay outstanding debts.
Voluntary Administration vs. Receivership
Sometimes people think receivership is the same as voluntary administration. Voluntary administration is initiated by the company’s directors when they believe the company is insolvent or likely to become insolvent. The goal is to give the company a chance to restructure and survive. In contrast, receivership is usually initiated by secured creditors seeking to recover their funds, often leading to the company’s liquidation.
Steps Involved
When a BNPL service like Laybuy is forced into receivership, several critical steps are involved:
Appointment of a Receiver
A secured creditor, such as a bank, appoints a receiver to take control of the company’s assets.
Assessment of Assets
The receiver assesses the company’s assets, including physical property, intellectual property, and any outstanding receivables.
Communication with Stakeholders
The receiver communicates with employees, customers, and creditors to inform them of the situation and outline the next steps.
Asset Sale
The receiver may sell the company’s assets to repay creditors. This could include selling off the BNPL platform, customer data, and other valuable assets.
Debt Repayment
The proceeds from asset sales are used to repay creditors in order of priority, typically starting with secured creditors.
Reporting
The receiver provides regular updates to creditors and the court, detailing the progress of the receivership and the status of asset sales.
Completion
Once all assets are sold and debts repaid, the receivership process concludes, and the company is either wound up or restructured under new ownership.
The Case of Laybuy
Let’s have a closer look at what really happened to Laybuy.
Laybuy was originally established in New Zealand back in 2016 by Gary Rohloff and his son Alex. Its service model was based on allowing users to spread their payments on items they bought on an ecommerce site for six weeks with no interest. The app’s popularity led to the Laybuy Group expanding its market to Australia and the UK, amassing an estimated 766,000 customers and 10,500 merchants at its peak. From that size, 610,000 were based in the UK as of March 2022, but that base dipped to 484,000 by the end of the year.
Laybuy was listed on the ASX from September 2020, with the intention to raise more capital to finance the UK operations. While it was able to raise $80m for a valuation of $352m, Laybuy was delisted in March 2023 and shifted to New Zealand’s Catalist small-business bourse. Some observers claim that Laybuy’s moves at the time were an outgrowth of BNPL market issues especially since physical sales returned after the pandemic and there was strong competition from other fintechs.
Things took a turn in April 2024 when Laybuy announced it was leaving Catalist and being offered for sale. Gary Rohloff, who was Laybuy’s MD, said a receivership became in order after a buyer pulled an offer at the last minute.
Laybuy suspended merchant payments on 14 June with Deloitte being appointed the following week as receivers of the company’s Australia operations, Laybuy Australia Pty Limited, and for Laybuy Group Holdings Limited and Laybuy Holdings Limited in NZ. The UK arm, Laybuy Holdings (UK) Limited and Laybuy (UK) Limited, were originally thought safe from the receivership, but FTI Consulting LLP stepped in as administrators on 24 June 2024.
Implications
The closure and subsequent receivership of Laybuy has significant implications for the industry:
Consumer Confidence
Consumers who rely on BNPL services may lose confidence in the stability and reliability of these platforms. The sudden closure of a BNPL service can leave customers with outstanding payments and unresolved disputes, damaging trust in the entire sector. In the case of Laybuy, though, officials said payment transactions that were in force before the receivership can still be settled but there will be no new transactions using the Laybuy app.
Regulatory Scrutiny
The financial distress of BNPL services like Laybuy has prompted regulators to scrutinise the industry more closely. Authorities in ANZ are likely to introduce stricter regulations to protect consumers and ensure the financial stability of BNPL providers.
Market Consolidation
The competitive nature of the BNPL market means that weaker players are more likely to be forced into receivership or voluntary administration. This could lead to market consolidation, with larger, more financially stable BNPL providers acquiring smaller, struggling competitors.
Innovation and Adaptation
BNPL providers must innovate and adapt to survive in a challenging financial landscape. This could involve diversifying their product offerings, enhancing their risk management practices, and improving customer service to maintain a competitive edge.
Conclusion
The receivership of Laybuy highlights the financial vulnerabilities and challenges faced by BNPL services in ANZ. Understanding the steps involved in receivership and its implications for the industry is crucial for stakeholders, including consumers, creditors, and regulators. As the BNPL sector continues to evolve, it is essential for providers to adapt and innovate to ensure their long-term sustainability and consumer trust.
By learning from cases like Laybuy, the industry can navigate its financial challenges and continue to provide valuable services to consumers in a responsible and sustainable manner.
DISCLAIMER: This article is for informational purposes only and does not supersede business advice. The information presented is based on the most accurate data available at the time of writing. AVANTE PARTNERS has no business interests with any fintech or BNPL company.
