Sezzle hit the market with an initial public offering that was heavily oversubscribed and rocketed up 80 per cent on its first day. And the unlisted Payright raised $27 million - taking its total raised from investors to $55 million. Loading Meanwhile, Splitit has given early investors a more than 100 per cent return since it listed earlier this year at 20 cents - even after it hit a speedbump this week after a June quarter report which revealed merchant transactions on its platform actually declined quarter on quarter due to funding constraints. (Its shares were up as high as $2 for a brief time in March). Flexigroup, once a sleepy consumer credit operator, was arguably the first Australian business to get into the BNPL market, but has only recently revamped its service offer and really entered the game. It has been a bumpy road for its share price, but those that got in at $1.10 earlier this year would be happy with the current $1.80 price. The elephant in the BNPL pack is Afterpay Touch. After listing at $1 three years ago and with its shares close to touching $27, this company is now capitalised at $6.76 billion. That's more than four times the size of its nearest competitor. Afterpay has had time to get its systems in order and build its brand name. The share prices of all the companies in this crop can be volatile - spiking on news of new merchant partners and falling when customer growth numbers don’t live up to lofty expectations. Their investors appear to have scant regard for the potential that any of the BNPL groups could get caught out by bad debts. Hungry for growth, they also seem to ignore the reality that not the entire crop of BNPL businesses can be winners. Yet for investors wanting to get into the game, there are plenty of things to consider - not the least of which is which stock offers the best entry point. That exercise is tricky considering that most of those companies don’t actually make any money, so the traditional price/earnings multiple is a fairly redundant tool for assessing value. As Dean Fergie from Cyan Investment Management says, the companies might be "in the same space, but are very different investment propositions". It seems counterintuitive to describe a company as young as Afterpay as mature - but relative to its peers it is. It has the first mover advantage, some critical mass, and a lot more customers and merchants signed up than its rivals. As such its rate of growth in Australia should taper off sooner than its competitors’. But it’s just at the beginning of its foray into the larger US market, and the British market is little more than a twinkle in the eye. So there is plenty of potential upside. The others in the BNPL space are in the earlier stages of development - and while their growth trajectory may be steeper, they arguably carry more risk. While it is fair to say that not all these BNPL platforms will survive - there should be room for two or three to make a healthy return. The success in signing up retailers over the next few years will probably be the major driver behind who prevails. Loading Each of the BNPL brands are offering slightly different marketing propositions. Some cater for ticket items, others offer different interest-free periods, or different interest rates on late payments or fees, and different levels of credit checking etc. But this won’t be enough to ensure all can make a living. Meanwhile, retailers will definitely want more than one BNPL platform in the mix. They need competition to ensure they don’t lose power to one single player. Already the margins of BNPL operators have been eroded as increased competition has seen the fees paid by retailers fall. Having said that, there is little doubt that even the large retailers need BNPL as a payment channel because a rising number of customers (particularly younger customers) are demanding it. (It is worth noting that Afterpay is now larger in terms of market capitalisation than any of Australia’s discretionary retailers. Harvey Norman’s market cap is around $5 billion, JB HiFi sits at $3.5 billion while Myer is worth less than half a billion dollars.) And the fact that it is the millennials and younger consumers that have truly embraced this payment channel, it stands to reason that its use will only increase as this demographic becomes more prosperous and the baby boomer dollar declines. There is undoubtedly plenty of growth left in this sector. The latest statistics released by the Australin Securities and Investments Commission show the number of consumers who have used buy now pay later options has increased five-fold from 400,000 to 2 million over the financial years 2015-2016 to 2017-2018. The number of transactions has increased from about 50,000 during the month of April 2016 to 1.9 million in June 2018. At 30 June 2018, there was $903 million in outstanding buy now pay later balances. At the same time the use of credit cards is in decline. The number of credit card accounts in Australia has dropped by more than 1.5 million in the 12 months to March 2019. This suggests after all that the BNPL operators have become highly successful bank disruptors. Elizabeth Knight comments on companies, markets and the economy.
Buy now pay later (BNPL) fintechs are disrupting the Australian credit market, wrote Afterpay Touch in The Sydney Morning Herald. The number of consumers opting for BNPL credit rose from 400,000 to two million between 2015 and 2018, while the number of credit card accounts declined by 1.5 million in the year to March 2019. Elizabeth Knight is leading the march with a share price of around AUD30 ($20), after a market launch price of AUD1 three years ago. The company is now entering the US market, with plans to eventually expand to the UK.