Buy now, pay later start-up Sezzle makes sizzling ASX debut

Sezzle ASX SZL buy now pay later stock IPO
Buy now pay later stocks have a new rival with Sezzle’s ASX debut today.

US payments start-up Sezzle (ASX: SZL) has made an impressive debut on the Australian Stock Exchange this morning, following the completion of an oversubscribed $43.6 million initial public offering.

The company’s share price rose 82% above its IPO issue price of $1.22 within two hours of its noon listing today.

Sezzle’s IPO offered approximately 35.7 million chess depositary instruments to a raft of participating brokers’ clients, institutions and “select investors nominated by Sezzle in eligible jurisdictions”.

When the IPO closed on Friday, there was a total of 193.2 million CDIs on issue, giving the company an indicative market value of around $217 million.

Minneapolis-based Sezzle said listing on the ASX made sense as local investors “already understand the buy now, pay later operating model”.

The company added it would use the funds raised to drive growth in its retail merchant base, build customer support and improve product capabilities.

Market rivals

Approximately 49.7% of Sezzle is currently held by co-founder and chief executive officer Charlie Youakim, who has steered the three-year old company to significant early growth in the US.

It is a space also occupied by main rival and local market leader Afterpay Touch (ASX: APT).

As noted in Sezzle’s prospectus, the number of “active merchants” it deals with has grown by a quarterly average of 79.3% from December 2017 to March 2019.

At 30 June, it had 429,898 active customers on 5,048 active merchants generating merchant fees (as a proxy for revenue) of US$2.1 million.

Importantly, the company has seen underlying merchant sales rise from US$1.6 million in the March 2018 quarter to US$28.3 million 12 months later – an increase of more than 1,600%.

By the end of the June 2019, underlying merchant sales had risen even further to $41.9 million.

Canadian first

Sezzle has been named as one of the fastest-growing emerging payment solution in the US, accounting for over 10% of sales for most of its merchant partners and increasing customer basket sizes by up to 50%.

This week, the company announced it would make moves across the border to become the first buy now, pay later service in the Canadian market.

“As millennial consumers in the US move away from credit cards, we can see a similar aversion to interest and debt in Canadian consumers,” Mr Youakim said.

He cited advanced algorithm and machine learning processes as the differentiator which allow Sezzle to provide the “highest approval rates in the industry”.

Smarter shopping

Sezzle enables shoppers to divide their purchases into interest-free instalments which can be spread over six weeks at no additional cost.

This provides consumers – particularly millennials who have zero credit history or prefer to avoid high-interest credit card debt – a “smarter, more financially-responsible way” to pay for their purchases.

Sezzle’s payment platform reaches consumers through merchant partners as a payment option at online checkouts, and as an alternative to paying directly with a debit or credit card at point of sale.

The platform charges shoppers 25% at the time of purchase, while Sezzle pays the merchant in full upfront and then collects the remaining instalments every fortnight from payment details kept on file.

Sezzle helps consumers gain access to budget-focused purchasing power through a quick and straightforward digital sign-up.

“Once an account has been created, consumers tend to shop with us again because their subsequent checkouts are fast and secure,” said Mr Youakim.

“Our merchant partners are excited to partner with us due to the sales lift we provide through our product (and) many partners will even promote Sezzle to their customers because of the impact the merchant has seen Sezzle deliver.”

Future developments

Sezzle’s ASX listing is just the tip of a technology iceberg that the company plans to chip into as it grows its market presence.

Complimentary new products are currently being developed including Sezzle Mobile which will allow customers to combine mobile payments with pay-by-instalment plans, eliminating traditional in-store lay-bys.

Sezzle said it had identified a potential card issuer and is working to identify suitable retail merchant clients to participate in a trial this year with a view to moving towards commercial and contractual arrangements.

Global expansion opportunities on its own or via international partnerships may also be considered.

“We have done extensive analysis on international expansion plans for our product but [we have] made no definitive plans beyond the recent Canadian expansion,” Mr Youakim said.

“Any future international expansion plans will depend on the identified opportunity and [our] resourcing and capitalisation requirements at the time of the decision.”