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Afterpay competitor posts record growth despite coronavirus crisis

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Splitit Ltd (ASX: SPT) has reported accelerating growth across leading KPIs, despite coronavirus challenges. Sales processed using Splitit are increasing alongside growing merchant numbers. The Afterpay Ltd (ASX: APT) competitor is delivering strong growth in revenue as sales usage of its service increases.

What does Splitit do?

Splitit is a buy now, pay later (BNPL) provider that allows customers to pay for purchases with an existing debit or credit card by splitting the cost into monthly payments. Unlike Afterpay, Splitit does not itself extend credit to customers. Its solution enables merchants to offer customers an easy way to pay for purchases in monthly instalments with instant approval.

BNPL providers thriving despite downturn

Splitit has recorded a 165% increase in merchant sales volumes in April to date. This follows a 152% increase in March thanks to new large merchant wins. Splitit’s average order value also started to trend upwards in April and is expected to continue to grow as the company signs up further large merchants. 

Afterpay reported a 105% increase in underlying sales in the year to the end of March. The month was the group’s third largest sales month on record, following seasonally higher November and December. Underlying sales in the March quarter were $2.6 billion, up from $1.3 billion a year ago. 

Heavy sell off and rebound

BNPL shares were sold off heavily by investors in the March market correction. Afterpay saw its shares crash 75% to a low of $8.90. Splitit shares fell 56% to a low of 22 cents. But it seems BNPL solutions may be more relevant to consumers than ever. The economic uncertainty created by the coronavirus pandemic means consumers are seeking budgeting solutions. 

As Afterpay has emphasised, its service promotes budgeting by responsible customers. The service is unable to be accessed by customers with even a single overdue payment. Splitit, on the other hand, does not extend credit so is not exposed to customer defaults. 

Shares in BNPL providers have recovered much of the ground lost in the March correction; Afterpay is up more than 200% from its low while Splitit is up 130%. North American competitor Sezzle Inc (ASX: SZL) shares are up more than 300% after falling 77% to 37 cents in March. 

Future is golden?

The BNPL proposition is proving attractive in current challenging times – Splitit reported a record start for the current quarter, with volumes in April 2020 up 152% over the same period in March 2020. The company expects to accelerate merchant acquisitions this quarter, with corresponding growth in transaction value and revenue. 

The March fears we witnessed for the BNPL sector now appear to be overblown. Where a decline due to economic adversity was expected, BNPL providers are instead expanding their reach as consumers increasingly choose to spread payments over time. 

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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T 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.

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