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Buy now, pay later provider fizzles on ASX debut

Buy now, pay later (BNPL) provider Openpay Group Ltd (ASX: OPY) fizzled on its ASX debut yesterday. The latest entrant to the now crowded sector listed at $1.60 and closed down 17% at $1.325, and has since slipped down to $1.32 in today’s trade.

The buy now, pay later landscape

The BNPL party has been raging all year. Shares in companies that allow consumers to take the goods but defer the hip pocket pain been hugely popular in 2019. Leader of the pack Afterpay Ltd (ASX: APT) has lifted nearly 150% over 2019, currently trading at $29.62 from $12 in January. ZIP Co Ltd (ASX Z1P) is currently trading at $3.58, a 225% increase to the $1.10 Z1P shares were going for in early 2019. 

Splitit Ltd (ASX: SPT) listed in January at 20 cents and gained 90% in its first day as a listed company, closing at 38 cents. Shares reached heights of $2 in March before returning to more grounded levels and are currently trading at 66 cents. Sezzle Inc (ASX: SZL) debuted on the ASX in July with a price of $1.22 per share. Shares in the US-based BNPL lender stormed 80% higher on debut, closing at $2.20, and are currently trading at $2.24. 

A closer look at OpenPay

OpenPay is the newest BNPL kid on the block, offering repayment plans up to $20,000 that run for up to 24 months. But is its lacklustre debut a sign of waning investor interest in the sector?

Openpay had more than 1,700 merchants on its books and 30,000 customer payment plans at the end of September, numbers that have increased 100% year on year for 3 years. Despite this impressive growth, investors reacted with a yawn. After all, Afterpay had over 31,000 merchants and 6,000,000 customers at the end of October. 

Openpay differentiates itself from other BNPL providers with higher payment limits and longer payment terms. This means Openpay customers tend to be a little older than average for the sector, with higher transaction values. Total transaction value using Openpay for payment increased from $27.7 million in FY17 to $97.3 million in FY19. According to an article in the Australian Financial Review (AFR), Openpay needs to increase underlying sales by around 10 times to become profitable. 

Where Afterpay mainly focuses on the retail sector, Openpay makes around half of its revenue from the automotive, healthcare, and home improvement sectors. Retailers pay fees varying from 1.745% up to 9% for services such as dentistry procedures, according to the AFR article. Customers are not charged interest but are charged fees for each repayment, account fees for large purchases, and late fees. 

Foolish takeaway

The latest BNPL provider has landed on the ASX with a pop rather than a bang. Openpay has a way to go before profitability is achieved and is competing in an increasingly crowded market. 

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Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO and ZIPCOLTD FPO. The Motley Fool Australia has recommended Sezzle Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.