Weekly Update August 11-15
BNPL player, New Earnings (Play-On Words), Insider Txn, and Watchlist Company
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Sezzle is a buy-now-pay-later company that went public in Australia very early on. The founder, Charlie Youakim, owns over 40% of the business and he’s extremely pragmatic. They hire quite diligently from Colombia to save costs, have a flat hierarchy, and a remote first culture. Mr. Youakim prefers credit cards himself but will vigorously test the limits of BNPL. After listening to several interviews with him, pragmatism was the main thing that stuck out.
That has led the company to pivot and figure out what works. What has been working is placing more of the burden of BNPL on consumers rather than merchants. It’s a very interesting case of counter-positioning. The big players, especially Affirm, have positioned themselves as never charging late fees. The business model, instead, is to charge interest and a high fee in the 6-8% range to blue chip merchants for the extra conversion/traffic. Sezzle has a similar model but they realized that younger customers were using BNPL as a budgeting tool, especially if they didn’t qualify for a credit card. Balances don’t revolve and Sezzle’s duration is just 6 weeks so they can quickly cut off credit access for someone who misses several payments.
But in the beginning, Sezzle didn’t have the blue-chip customers since Affirm and Klarna were much bigger and a merchant doesn’t want 3-5 different checkout buttons as it muddies the customer experience. So Sezzle allowed consumers to pay a subscription to turn any purchase into a pay-in-4. They then announced “On-Demand” where a customer could skip the subscription but pay a defined amount in order to turn any purchase into a BNPL. So instead of charging interest, they were charging dollars upfront and in subscription form just for the privilege to use a virtual card that spreads any purchase over 6 weeks (25% upfront and then 25% every two weeks).
Placing more of the fees on the consumer enabled the company to grow very quickly and profitably. The low overall dollar amounts were more tolerable than the idea of customers have a revolving credit balance. If you have a great credit score and plenty of cash, this mindset probably won’t make sense to you. Now, there is an interesting ethical question here so this company is not for everyone but on the other hand, Sezzle actually allows customers to build their credit and can save them from drowning in credit card debt. Sure, it’s obviously not financially wise to buy things you can’t afford but it’s a bit of a gray area since it is helping some people build credit.
What’s crazy is that the company is growing over 70% and has 30% EBIT margins. That is vastly better than Affirm and Klarna. The company seems to have found a business model that has product market fit and they are executing on it quite well.