In the coming weeks American ecommerce firm Zebit will join the ASX’s buy now, pay later (BNPL) cohort  — a sector that has outperformed and is still gaining momentum, particularly since COVID-19 hit.

The ASX’s BNPL story began with home grown success story Afterpay (ASX:APT), which listed at $1 four years ago and is now worth over $70 a share.

This run of success has extended to all that followed, including another US-based player, Sezzle (ASX:SZL), which since listing in July 2019 has surged nearly 500 per cent to $7.22 per share.

But unlike its BNPL peers, Zebit is targeting a different market — one that although slightly risky, may pay off in spades.

Zebit co-founder and CEO Marc Schneider told Stockhead the ASX’s other BNPL players were all the same in two respects.

Firstly, they feed off other companies’ ecommerce sites and secondly, they targeted consumers with higher credit scores.


A large untapped market

Zebit, however, has its own ecommerce site and is aiming to tap into a pool of over 100 million people — the US population that have lower credit scores are unlikely to pass a credit check.

“Eighty per cent of the [American] population lives paycheque to paycheque, you’ve got 100 million consumers at risk that cannot get access to mainstream credit,” Schneider said.

“And there is no off-the-shelf data source that tells you about their credit worthiness or the affordability.”

Schneider describes Zebit, which was established in 2016, as a “one-stop-shop for non-prime consumers”.

The company booked $US85.5m in revenue in 2019. Around 630,000 people are already signed up to Zebit.

Schneider says BNPL gives these “non-prime consumers” the option of buying the things they need at competitive prices and paying for them in instalments over time.

“That doesn’t exist in any shape or form in the United States for most consumers,” he explained.

Schneider said satisfied customers were the best form of marketing.

“This huge population of consumers has never had a fair deal,” he said.

“And the way they’re vocalising is to tell people ‘you should go get Zebit. Its the first proposition that’s not going to rip you off, it’s not going to get you into a cycle of debt and if you fall off the bandwagon they’re not charging you fees and penalties’.”


Choosing Australia over the US

While Zebit’s headquarters and key market are in the US, the company is pursuing an ASX listing.

Schneider put the decision down to the opportunity offered in Australia, as well as the success of other BNPL players that have listed on the ASX.

“I’ve been looking at Australia for 18 months. I know the ASX has been coming here for three years, I’ve met with them twice,” he said.

“They’re looking for Silicon Valley venture capital-backed companies to come down, list and add diversity to the ASX. I think our company fits into that kind of diversity.”

The tech-heavy NASDAQ is difficult to list on unless you’re at least a billion-dollar company.

“It made sense from a capital reasoning perspective, and I haven’t changed my mind in 18 months doing research, coming down there and talking to investors about this concept,” Schneider said.


US venture capitalists not interested

But even if Zebit decided to wait, no deal was assured. Schneider argued US venture capitalists had gone cold on credit and lending businesses.

Australian investors, meanwhile, have a massive appetite for the BNPL plays.

“It’s not just because of COVID, they just need it,” Schneider said.

“We’re trying to level the credit playing field for 100 million consumers at risk that end up paying 200 to 400 per cent to buy a product and finance it with very limited alternatives.”

Schneider admits COVID-19 has likely hit a significant proportion of non-prime consumers.

But with lockdown laws shutting US retailers, these consumers are embracing ecommerce faster than before.

Schneider also noted that history showed this group of consumers bounced back faster from recessions than other consumers. This is because of their experience in having to live within their means all the time.

“If you look at every recession that’s happened in the US, the non-prime credit consumer actually fares better during a recession. Why? Because they live in a recession every day of their lives,” he said.