5 min read

Generation Buy Now, Pay Later

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Season’s Greetings!

It’s almost 2022, and a new COVID-19 variant threatening to take us back to 2020 has everyone on edge. Countries are announcing new travel rules and vaccine makers are prepping for more trials and research. The biggest Black Friday sales were at the stock market, where prices plunged — with the notable exception of early lockdown favorites like Zoom, Peloton, and, well, Clorox.

No one knows what will happen next, but here’s something positive: the pandemic spurred immense growth in impact investing (measurable positive impact + financial returns) after it exposed severe inequalities and inadequate infrastructure around the world. The goals of investing have been shifting during the crisis, and people are putting their money to work for themselves and the greater good.

One way individual retail investors can practice impact investing is in the bond market, where companies and governments raise money to spend on green, social, or sustainability initiatives. The other way is in the stock market, by buying shares in impactful companies or investing in impact funds that choose and hold such shares. (Scroll for the gender approach to this in today’s Figure in Focus below).

You can tune in today to Investing for Good USA (FT Moral Money) for a full day of interesting panels on a wide range of relevant topics. One we will be watching: Opportunities in the Green Recovery at 2:30 pm ET, which includes FWIW founder Jean Case.

What we’ve been thinking about …

The “Tesla for boats” raised another $30 million from investors, including General Motors. There’s also talk of making superyachts, the world’s most carbon-intensive asset, greener.
There has been a lot of hype around IPOs this year, but a study out this week shows that 49% of the 2021 IPOs that raised $1 billion or more on their debut are now below their listing price.
Paying with cryptocurrencies isn’t mainstream yet, but startups see the tech transforming philanthropy and remittances, or the transfer of money by migrant workers to families overseas.
Snacks made of would-be waste ingredients, like bruised and rejected fruit, are pegged as a food trend to watch in 2022. “Rescued lemons” may be the cutest phrase ever.
Microsoft shareholders are forcing the company to be more transparent on sexual harassment investigations. (BTW, this year the firm’s “ugly holiday sweater for charity” supports AbleGamers and is Minesweeper-themed. We sorta love it.)
New Twitter CEO Parag Agrawal’s top priority is moving the platform toward new revenue sources away from the ad targeting model that has caused so many problems for social media companies. Can it be done?
The Forbes 30 Under 30 Social Impact list just dropped.

Breaking down ‘Buy Now, Pay Later’

Have you glanced at the price of something online lately and noticed an option to pay with smaller, interest-free payments? The $200 dress or coffee machine you’re eyeing could be yours immediately and paid for over several weeks with four equal installments of $49.50.

These are Buy Now, Pay Later (BNPL) services and their popularity is booming, especially among young people wary of debt. BNPL users in the US have grown by over 300% per year since 2018, having reached 45 million in 2021 with collective spending of $20.8 billion. The option’s popularity also jumped on this year’s Cyber Monday, said Adobe. Affirm, which went public earlier this year, is the biggest player in the US with a 36% market share, but other major BNPL providers you may come across are Klarna, Afterpay (being bought by Square), Zip, and Sezzle.

Here’s how it works: The BNPL provider pays on the buyer’s behalf at the time of the purchase and is responsible for collecting the balance installments. It’s like the old practice of store credit, but with a high-tech middleman. For taking on all the risk, the BNPL company earns a cut from the retailer and can also charge buyers late payment fees.

This new borrowing model, which is slowly expanding from clothing/electronics to other segments like health care and travel, offers a new alternative to credit cards, which come with fees and are harder to get, or predatory payday loans, with interest rates that can cross 600%. It’s built to be convenient and also accessible to the financially underserved: providers perform limited screening, and some may ask for positive credit history and not too much debt.

But this accessibility is also one of the drawbacks right now since these companies aren’t required to check whether users are capable of repaying.

More insight on where this trend may be headed can be gained from where it first emerged: Australia. There are a record 12 BNPL stocks trading Down Under, but the sector is reporting tremendous losses as regulators and consumer groups raise awareness about the risks of impulse buying and debt spirals. A 2019 government report found that 21% of users missed a BNPL payment in the last 12 months; close to half were below the age of 30. About 15-20% were cutting back on or going without essentials like meals or taking out additional loans in order to make their payments on time.

We’re seeing some of that here at home as well, with 26% of users reporting missing at least one payment, according to a recent survey.

BNPL may have its problems, but there’s no reason to empty the cart yet. The concept has great potential to revolutionize borrowing and change the financial industry. Giants like Mastercard and PayPal have already entered the BNPL market, and it’s likely we’ll see many changes, improvements, regulations, and corporate winners and losers in the coming years.

Figure in focus

That’s how much money was invested in gender lens equity funds (GLEF) available to individual investors, as of September 2021. Since the start of the year, this amount has grown 35%. Globally there are currently 26 such stock funds focused on gender issues, according to Parallelle Finance. These GLEFs are mutual funds, ETFs, ETNs, etc. made up of shares in companies with policies that promote gender equality and empowerment.

The four largest GLEFs accounted for 67% of the assets in the entire group. They are:

Pax Ellevate Global Women’s Leadership Fund - $929 million AUM
UBS Global Gender Equality UCITS ETF - $868 million AUM
RobecoSam Global Gender Equality Impact Equities Fund - $310 million AUM
SPDR SSGA Gender Diversity Index ETF - $277 million AUM

Click here for the complete list of GLEFs and their performances as of September 30. We’ve also dug into gender lens investing in a previous FWIW edition.