Last August 10, 2023, attendees were given the chance to hear from financial advisory experts at YCP Solidiance’s latest insights webinar “M&A Mega-trend and Valuation Techniques of Fintech in Southeast Asia.” The experts spoke on the future of Southeast Asia’s (SEA) Buy Now Pay Later (BNPL) industry and the potential for new M&A opportunities within the industry.
The webinar began with a discussion by YCP Solidiance Thailand Manager Mak Khan, who spoke on the untapped potential of the BNPL industry across the region. He touched on key market players, the shift in the buyer type of BNPL companies, and the industry’s ability to provide various synergies to different buyer types. Following his discussion was a real-time valuation of BNPL company Affirm, performed by Alex Charles Vila, Manager at YCP Solidiance Thailand.
Understanding the Potential of the BNPL Industry
In 2022, Southeast Asia recorded USD 6 billion in transaction value across the BNPL industry. During his discussion, Khan highlighted three key drivers that would push the BNPL industry forward across the region namely: the unbanked population, growing internet and mobile banking access, and e-commerce. He shared that these drivers could potentially propel the industry to reach a market value of USD 138 billion by 2030.
Khan also provided an analysis on the major BNPL market players in each country. While the Southeast Asian BNPL market is new in comparison to that of Europe, there is no one dominant market player in the region. Khan also shared that over the last two years, banks have been the primary acquirers of BNPL companies. As the industry continues to grow, he expects more players and regulating bodies to emerge, along with new acquisitional targets, thus increasing the potential for M&A.
He shared, "BNPL in Southeast Asia has the foundations in place to realize secular growth. Local players will continue emerging to present M&A opportunities, in line with the global trend where, not only do we see an uptake in M&A of BNPL, but different buyer types such as banks, emerging. In the long run, we stand on the view that e-commerce trailblazers aspire to disrupt the established banking order, positioning themselves as the avant-garde of the banking future, and espousing the notion that lending can be democratized through pervasive technology. Ultimately, fintech is poised to dismantle the longstanding entry barriers traditionally safeguarded by banks." 
Meanwhile, Vila shared YCP Solidiance’s experience getting the valuation of BNPL company Affirm. He first explained the revenue model of the company, which primarily earns through merchant commissions, interest income, and the sale of loans. He then demonstrated how the YCP team crafted the adjusted discounted cash flow (DCF) method and explained why this specific method works for money-lending companies, like BNPLs. With the nature of their business, BNPL companies are highly capital-intensive and will always require more capital to grow. During his demonstration, Vila emphasized the importance of debt for BNPL companies like Affirm.
He shared, "For Affirm, debt is required to ‘manufacture’ their products, the BNPL loans. Hence, for BNPL companies, we can consider that debt is not the source of funds but rather their raw material. In other words, we can say that debt for Affirm is what wood is for a carpenter."
While the BNPL market across Southeast Asia is steadily growing, there is still room for more growth and improvement in the years to come. The BNPL industry will continue to grow with more players emerging presenting more opportunities for M&A, and ultimately, challenging the established banking order.
