Worried you’ve missed the buy-now-pay-later bandwagon? Meet Sezzle
In the coming months, a new competitor is set to join the field of ASX-listed buy now, pay later (BNPL) payment platforms.
The US-based Sezzle has been meeting with investors around the country, and is eyeing off the local bourse to fund its expansion plans after raising almost $8 million from private markets in America.
Once approved, Sezzle will become one of a number of BNPL providers that call the ASX home, next to Afterpay (ASX: APT), Zip Co (ASX: Z1P) and Splitit (ASX: SPT) – which listed in January and immediately rose from 20c to $2 before settling around the $1.30 mark.
Speaking with Stockhead, Sezzle co-founder Charlie Youakim said local investors “knew very quickly that we’re not much like Splitit”, which differs slightly in that its payment technology is only applied to credit cards.
But the platform, which is focused on the US market, operates with a similar model to Afterpay — a company that has investors watching keenly as it tries to execute a US expansion strategy of its own.
In terms of the US BNPL landscape, Sezzle expects to be going head-to-head with Afterpay to build market share. And while early traction is important, Youakim thinks the size of the potential market is big enough to reward more than one player.
“Our view is that here in the US, it’s gonna be a two-player game like Visa and Mastercard,” he told Stockhead.
The company was launched 2016, after Youakim and co-founder Paul Paradis noticed a shift in consumer behaviour around debit payments.
“We had this data point that young people were paying with debit at higher volumes than ever before in the US,” he said.
He partly attributed the shift to the regulatory fallout from 2008’s global financial crisis, when the legal age for getting a credit card rose from 18 to 21.
In that environment, Youakim says Sezzle wants to use its local knowledge and a consumer-focused strategy to compete.
“Our viewpoint is that winning over the consumer is the key. So we’ve done everything in our power to focus on that area.”
The company offers free rescheduling to extend payment terms by two weeks. Customers can also repair a payment failure for free if they do it within two days.
Late fees are capped at $10 and the company has fee income now comprising less than 20 per cent of total revenue — a level “investors are more comfortable with,” Youakim says.
“If we’re eventually present in a Visa/Mastercard situation, we want the customer to choose us.”
Sezzle’s listing will see it become the fourth BNPL platform to join the ASX. Amid that backdrop, some investors have questioned the capacity of such companies to grow revenue given barriers to entry look low.
But Youakim doesn’t foresee a race to the bottom, with more and more players entering the sector offering vendors increasingly lower prices.
“I think there are some truths but also some misconceptions about the ease of entry to the market,” he says.
“First of all these are financial products, and financial products aren’t easy to launch. There’s a lot of regulation you have to clear and it’s not a simple game to establish a mechanism for processing transactions.”
Beyond that, he says getting early traction in the market is critical to establishing a competitive position.
“Envision a USA market two years from now where both Sezzle and Afterpay will already be present on the retailer’s site,” he explained.
“In this scenario, the new provider will have to offer a discounted rate to the merchant to give the retailer any compelling reason to add them — especially with zero users.”
In addition to having to cut prices, new entrants would also be more likely absorb a funnel-effect: consumers with poor credit ratings who have failed with existing providers.
“I think with our sector that once you get saturation, it becomes more difficult for new entrants to get traction,” Youakim said.
For many Australian fintech companies, the goal is to establish a base in Australia before expanding overseas.
The BNPL sector is operating in the opposite direction — companies established in global markets are eager to raise funds from local equity investors.
Commenting on the shift, Youakim attributed it partly to the fact that Australia is actually ahead of the US when it comes to payments technology.
“For me, the seed was planted about a year ago when I spoke with an analyst covering the space. The view was Australia is 2-5 years ahead of the US for this product. Investors have seen how it takes hold, and they understand it,” he says.
“In the US a year ago, we were talking to private fintech investors — people who are supposed to be knowledgeable about payments tech — and we were educating them that this model even existed.”
“When I talked to Australian investors, we moved right to nuance – they understood the model, and it was just, ‘how are you different?’ ‘How do you see this market playing out?'”
“I think there’s also a misperception globally about private markets here in the US. It’s actually rather illiquid and rather slow and unless you’re an Uber it takes quite a bit of time to raise capital.”
On that front, Youakim pointed to his experiences raising capital for a transport-based payments platform, which he set up in 2010.
“I’ve done it for 10 years, so I know it very well. Our view is that we have an opportunity to raise capital in Australia – and subsequent capital if we need it – at a much faster pace, and that’s why we really loved the idea of listing in Australia.”