Australian buy now, pay later (BNPL) firm Openpay Group is pulling out of the U.S. after only a few months in the country, Reuters reported on Friday (July 1).
While Openpay had called the U.S. its main growth market, rising interest rates, poor economic conditions and the “likely ongoing capital investment required” has prompted the firm to cease extending loans in the country. The company is laying off the majority of its workforce in the U.S.
See also: Opy Brings BNPL Platform to US
Openpay’s BNPL service offered users up to 24 months to pay for purchases of no more than $20,000 with a flat fee built into the payments, PYMNTS reported last October. CEO Brian Shniderman said at the time that the company’s mission was to improve the way people pay.
The model for BNPL firms sprung from a low-interest rate landscape that gave companies a way to raise funds at a low cost and offer point-of-sale loans to eCommerce shoppers. The hike in interest rates is threatening the business model, per the report.
Read more: PYMNTS Intelligence: Exploring Varying Uses of BNPL Options Among Generations and Income Groups
“These businesses are clearly unprofitable, and in order to reach profitability they need to grow, but in order to grow you need more capital, and rising interest rates increase their funding cost,” Tom Beadle, an analyst at UBS, told Reuters.
Rising rates also put “pressure on household budgets, and that increases the likelihood of a consumer to default,” Beadle said. “They get hit on both sides.”
Oher BNPL brands like U.S.-based Zip and Sweden-based Klarna have also downsized amid rising interest rates. Australia-listed BNPL firm Sezzle, which is being acquired by Zip, is slashing a fifth of its U.S. workforce.
Related: Payments Firm Opy Offers Financing for Car Repairs
In March, Opy branched out into the automotive sector to offer BNPL at franchised dealerships around the country. Consumers spend more than $2,000 a year on car repairs, fueling an $82.6 billion automotive service and repair sector that’s projected to rise by at least 10% in the next three years, PYMNTS reported.
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