Afterpay-led buy now, pay later sector booms as more money pours in
The buoyancy of the listed buy now, pay later stocks is filtering into the private market, with Afterpay competitor Payright securing $12 million in a funding round led by wealth managers Escala Partners.
It is the second local private BNPL fintech to raise funding in as many months, with white label BNPL business Limepay raising $6 million, showing that appetite for investing in split payments businesses stretches beyond the ASX.
Payright, which has now raised $60 million in the last 18 months, specialises in higher value transactions than the leaders in the space, Afterpay and Zip, offering consumers the ability to pay via instalments on transactions up to $10,000. In one-off circumstances this limit can be extended to $20,000.
Speaking to The Australian Financial Review, co-founder and co-CEO Myles Redward said the average value per transaction using Payright was $2500.
“There’s been a number of new entrants to the market in the last six to 12 months, but most focus on transactions that are a few hundred dollars. That’s our key difference,” he said.
“We are approaching 50,000 customers on the books at the moment and we have 3000 merchants. The March quarter saw a record high number of merchants join … up about 200 per cent.”
Mr Redward and his brother, Piers, who both came from a finance background, founded the business in 2016.
Rather than clothing retail merchants, its sweet spot is in the home improvement and health and wellness industries. Merchants using the platform include AMA Group.
According to a recent Roy Morgan report, awareness of BNPL services Afterpay and Zip have soared 22.1 percentage points in the last 18 months, with more than 12.3 million Australians aware of their services.
Last week Afterpay hit a record $70 a share, giving it an $18 billion valuation. This puts it comfortably in the top 20 most valuable companies on the ASX and makes it more valuable than companies such as Insurance Australia Group, Brambles and Suncorp.
At the last full year, Afterpay recorded $251.6 million in revenue.
Since March, when the stock plummeted in the market downturn, the business has climbed more than 745 per cent. At the same time the other listed BNPL stocks have also soared, with Zip up 448 per cent, Splitit up 600 per cent and Sezzle up more than 1000 per cent.
Piers Redward said the market for small transaction was becoming crowded, but he was confident there was less competition in Payright’s segment of the market.
“The growing number of players is a testament to the acceptance of BNPL in Australia and globally. There is growing demand for it as a form of payment,” he said.
“They key reason is due to the transparency around payments and customers having a clear understanding of the payment obligations over a fixed term. It lets them understand how to budget for a particular item or purchase.”
The strength across the sector defies the expectations of many analysts, with Citi downgrading Afterpay to neutral in April, with analyst Siraj Ahmed tipping that its growth would slow.
Now, the companies are priced as though they face no near-term risks, but RBC Capital Markets analyst Tim Piper said there could still be a dip in consumer spending to come.
“A key near-term risk in our view is government stimulus rolling off and what that could mean for consumer spending and bad debts,” he said.
Like its rivals, Payright’s service is interest-free for consumers so long as they pay on time. But, consumers do pay a one-off establishment fee (up to $89.95), a monthly account keeping fee of $3.50, which is charged (pro-rata) with each repayment and a $2.95 payment processing fee, which is added to each repayment.
When a customer does not make a payment on time, they incur a late fee of $5, which is capped at $12.95 if multiple missed payments occur.
Late fees have been a contentious issue in the sector, with the fees making up a sizeable chunk of revenue for Afterpay, but the company says it would actually make more money if consumers paid on time.
In financial 2018, late fees made up 24 per cent of the company’s income, but this fell to 18.7 per cent in 2019. In comparison, Payright says only 1 per cent of revenue is from late fees.
Myles Redward said the company’s $12 million raise was oversubscribed, despite the round kicking off when the market hit a low in March.
“It’s reflective of the demand for listed and unlisted BNPL stock,” he said.
“In terms of listing versus staying private, it’s hard to ignore the multiples we’re seeing our peers reach and we’re looking at that, but also keeping our options open. The focus for now though is to continue to grow and scale.”
Piers Redward said with the capital, he expected the company was already bringing on a few hundred merchants a month, and he expected this to increase following the raise.
“We’re still in the infancy of the acceptance of BNPL across sectors and there’s a lot of runway still to go.”Back to News