Our position on BNPL, since its arrival on the American market, is that the model is not viable. Simply put, you can’t lend credit without responsible lending standards. This puts consumers in a bad position and infuriates regulators. Investors may tolerate credit losses to gain scale, but the long-term horizon suggests that investments will soon deteriorate. What about bank-grade, safe and sound loans? Fuhgeddaboudit, as Donnie Brasco said.

Two recent events beyond the Australian BNPL stock market collapse indicate that the Buy Now Pay Later (BNPL) is collapsing. First the the wall street journal noted that Klarna, the grandfather of BNPL, devalues ​​their company by a huge amount.

Klarna Bank AB is seeking to raise new money that could value the fintech giant at nearly a third less than the roughly $46 billion valuation it achieved just under a year ago , according to people familiar with the matter, an example of the the challenges facing the world of tech investing.

Klarna specializes in buy-it-now and pay-later services, a popular type of cash advance that competes with credit cards and allows customers to pay for goods and services in installments without paying interest. Instead, Klarna makes money by charging fees to merchants who offer Klarna’s services.

Klarna became Europe’s most valuable fintech startup in June when SoftBank Group Corp.’s Vision Fund 2. led an investment in the company which valued at $45.6 billion.

Last year, Klarna’s net loss widened to 7.1 billion Swedish krona, or $705.7 million, while credit losses jumped as the company grew its consumer base and spread geographically.

Klarna’s devaluation comes as they attempt to raise another $1 billion.

The second issue of the day comes from Affirm, an American firm that shares the market with a stock market valuation at half mast.

Nasdaq listed stock price Affirm Assets Inc., a competitor of Klarna, is down 75% this year, giving it a market value of $7.2 billion. The drop comes even as the payment network earlier this month raised its 2022 revenue forecast of $1.33 billion to $1.34 billion, from an earlier forecast of $1.29 billion to 1. .31 billion dollars.

The concept of BNPL has awakened many credit card issuers. However, some consumers want something more than revolving credit cards. Like us illustrated in a recent reportlenders need to consider the implications of installment loans, especially when interest rates rise.

But for now, the threat of fintechs taking over credit cards with a uninteresting model that cannot support funding needs, or a “model without exchangewhich often fails to mention the merchant discount, is a castle built on sand.

Don’t throw away your credit cards.

Preview by Brian RileyDirector, Credit Advisory Services at Groupe Conseil Mercator