Fintech company and US payments start-up Sezzle (ASX: SZL) has been given official approval to expand its US operations in California after the Department of Business Oversight (DBO) formally approved its application for a lending licence.
Sezzle listed on the ASX earlier this year following the completion of an oversubscribed $43.6 million IPO. The move thrust the company into competition with existing players in the space such as local market leader Afterpay Touch (ASX: APT).
The DBO approval means Sezzle can now consolidate and entrench its operations in California – America’s most wealthy state – and potentially establish itself as the leading US-based instalment payment platform.
Up until yesterday’s approval and accompanying lending licence, Sezzle was operating in California under what’s known as a “retail instalment structure” whereby retailers initiate instalment loans and transfer them to Sezzle for longer-term servicing.
However, with the lending licence secured, Sezzle says it can now undergo a seamless transition of services from its prior structure to a direct lending structure which is far more commercially lucrative for the fintech start-up.
According to Sezzle, its payment platform increases purchasing power for consumers by offering interest-free instalment plans at online stores. Greater purchasing power for consumers leads to greater sales and basket sizes for the more than 7,500 active merchants that offer Sezzle in North America.
Creating a payment and lending solution rolled into one allows consumers with zero credit history to avoid high-interest credit card debt as part of a streamlined method to pay for their purchases.
Last year, Sezzle was recognised as one of the fastest-growing emerging payment solutions in the US, accounting for over 10% of sales for most of its merchant partners and increasing customer basket sizes by up to 50%.
“We are thankful to the California Department of Business Oversight for their prompt and open approach to resolving this matter in such a timely and professional manner. This is a great result for Sezzle and provides the platform for us to continue our planned growth strategy in the state of California,” said Sezzle’s executive chairman and chief executive officer Charlie Youakim.
As a co-founder, Mr Youakim currently holds 49.7% of Sezzle’s shares and has declared that he intends to lead the company towards continued expansion and greater market presence over the coming year.
Growing market presence
Potentially as an indicator of how consumer trends are shifting away from banks and towards fintech providers, Sezzle published interim results at the end of last year, close to the peak of consumer spending in the form of Thanksgiving, Black Friday and Cyber Monday.
The company reported that following the shopping bonanza and multiple sales that are typically offered in December, Sezzle added over 36,000 new active customers, representing a marked acceleration compared to the 8,000 new active customers the company attracted during the same time in 2018.
Moreover, underlying merchant sales rose 402% compared to the previous year to US$11.3 million. This result compared “extremely favourably” with Sezzle’s total of US$157.5 million in merchant sales for the 12-month period ending on September 30, 2019.
One interesting aspect of the results published by Sezzle, and what the company has called a “tailwind”, was the declining use of credit cards for retail purchases. This trend was “strongly evident” over the holiday period as payment methods other than credit cards were used by most shoppers, the company said.
According to a PYMNTS survey of 2,000 consumers, in-store use of credit cards by shoppers for payment declined from 50.2% of shoppers in 2018 to 49.3% this year.
In order to ensure it has enough capital to cover its rapidly growing customer base, Sezzle has also secured a US$100 million (A$145 million) funding facility to support future growth as part of an overarching strategy to grow its presence in the US. The move more than tripled the company’s previous funding facility of US$30 million and served as a “key plank” for realising its growth expectations.
Yesterday’s approval from the DBO helped push Sezzle shares up around 18% up to $2.09.