United States-based Zebit is the the latest buy now, pay later (BNPL) entrant to seek a place on the ASX, with a listing planned for September. According to the Australian Financial Review (AFR), Zebit will be looking to raise $42 million which would value the company at $200 million. But Zebit is not just looking to muscle in on the BNPL space, it is also an eCommerce retailer a la Kogan.com Ltd (ASX: KGN), selling some 90,000 products.
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Strong growth in eCommerce and BNPL
BNPL providers have seen an upswing in already strong transaction volumes as a result of the shift to eCommerce and a renewed focus on budgeting in the wake of COVID-19. The likes of Afterpay Ltd (ASX:APT), Sezzle Inc (ASX: SZL), and Openpay Group Ltd (ASX: OPY) have reported increasing customer numbers and revenue in recent market updates. Kogan, too, has benefitted from the move to online shopping, with sales increasing 103% year on year in April and May.
New listing combines eCommerce and BNPL
Zebit is like a combination of Afterpay and Kogan operating in the US market. It offers products from some 75 suppliers through its website with an in-house BNPL solution available to customers. The company does not actually have any inventory or warehouses of its own, but instead puts customer orders through to suppliers which then despatch products on Zebit's behalf.
Zebit's BNPL offering specifically targets customers who can't get credit elsewhere, according to the AFR, with almost all customers using it because their credit ratings aren't high enough to qualify for mainstream credit products. According to Zebit, this market is underserved by BNPL operators such as Afterpay and Sezzle.
Zebit could be on to something – it estimates this market consists of 154 million underserved US customers creating a US$85 billion market. But bad debts are a fact of life in this market and Zebit saw bad debts of 17.4% as a proportion of revenue in FY19. According to the AFR, the company is in the process of rolling out a new registration system to reduce the proportion of bad debts.
Will Zebit work?
Zebit is seeking to combine BNPL services with something like an online department store selling everything from fridges and beauty products to jewellery and electronics. By targeting a traditionally underserved market, it may be able to expand market share rapidly. In order to grow profitably, however, Zebit will need to carefully manage bad debts.
