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ASX BNPL shares: should you invest in the fastest growing industry of 2020?

Rocket shooting out of investors outstretched hands to signify fast growth of ASX tech share
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Market research firm Ibisworld recently published its report on the top 10 fastest growing industries in Australia by revenue growth. This list was published for free on their website and measures the revenue growth of more than 750 industries in Australia from 2019–2020. 

Taking out the number one spot on the list, with a massive 12-month revenue growth of 65.8%, is the buy now, pay later sector, or BNPL. We take a closer look at some of the major ASX buy now, pay later shares below. 

Who are the major ASX buy now, pay later players?

Afterpay Ltd (ASX: APT)

Afterpay is arguably the most well known BNPL brand in Australia. Founded in 2017 in Melbourne, Afterpay is a local legend. There aren’t many shop windows left that are missing the Afterpay sticker!

With a market cap of $18.84 billion at the time of writing, Afterpay is a heavyweight. The BNPL giant wasn’t immune to the COVID-19-induced market crash in March this year, however, Afterpay shares have since increased by a staggering 780%+ since their March low. An even larger number is the 2,500% share price gain since Afterpay’s IPO in July 2017 – that’s an impressive 3-year run.

Between March and April this year, Chinese fintech giant Tencent Holdings acquired approximately 5% ownership in Afterpay. Tencent holds a wide variety of positions across many companies with internet-related products. If the share price increase in Afterpay following this substantial holding announcement is anything to go by, investors in Afterpay were pleased with the Chinese interest.

Zip Co Ltd (ASX: Z1P)

There’s a difference between Afterpay and Zip from a consumer point of view. Whilst Afterpay is static on a payment schedule (similar to layby and strictly over 4 fortnight periods), Zip allows consumers to determine their own schedule. This can be an important point of difference for shoppers on a budget.

Additionally, Zip splits its business model into 2 pieces: Zip Pay, for accounts with a limit of $1,000; and Zip Money, for accounts with limits above $1,000. Customers can purchase multiple items across multiple stores and then receive a single monthly invoice from Zip. From here, they can choose to pay the full amount or make custom instalments.

With a market cap of $2.47 billion at the time of writing, Zip Co is much smaller than Afterpay, however still considered a major player in the BNPL industry. Since its IPO in September 2015, Zip Co has provided shareholders with growth to the tune of 2,400%. 

Who are the BNPL ‘up and comers’?

There are a number of smaller BNPL companies listed on the ASX. Too many, in fact, for the confines of a single article, but here’s a look at one that is challenging the big players:

Sezzle Inc (ASX: SZL)

A market cap of $567 million at the time of writing and similar product offerings to Afterpay means that Sezzle is an up-and-coming competitor in the BNPL space. However, a key difference between Afterpay and Sezzle is market share. According to SimilarTech, Afterpay has more website coverage than Sezzle across all categories. 

Market share is not only important to revenue but also simply for brand recognition, so, although Sezzle has experienced impressive growth recently in its share price, in my view it still needs a little more market dominance before it can seriously challenge Afterpay and Zip.

Foolish takeaway

With subtle differences between the BNPL providers and new players coming on the scene, it makes sense to spread an investment in the industry across a few names. While Afterpay might appeal to the younger crowd, Zip offers monthly payment scheduling, which can be the point of difference needed for a salaried consumer.

With BNPL being named this year’s highest revenue growth industry by Ibisworld, the money will likely continue to flow into the sector. I believe investors in ASX buy now, pay later shares can expect pleasing results for the second half of this year and beyond. 

Where to invest $1,000 right now

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*Returns as of June 30th

Motley Fool contributor Glenn Leese has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. 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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Glenn Leese