BNPL players Zip and Sezzle call off merger plans

Citing "current macroeconomic and market conditions," buy now, pay later firms Zip and Sezzle have called off plans to combine forces — less than six months after announcing their merger agreement.

Why it matters: Once a high-flying category in fintech, the BNPL market is facing a reckoning driven by higher interest rates and declining consumer demand.

Context: Sezzle agreed to be bought out by Australian rival Zip in February, but both the public and private markets have since seen a reset in the valuation of BNPL players.

• By the time the deal was announced, Zip — publicly traded on the Australian stock exchange — had seen its market cap decline 80% off its all-time high from the previous year. It has since fallen 75% from that lower point.
• It's not alone, as Klarna — once the most highly valued startup in Europe — recently raised a new round of funding that cut its valuation by 85%.

The big picture: As the market turns, BNPL players must prove they can weather a challenging lending environment with smaller margins and higher risks of default looming.