The buy now, pay later (BNPL) method of payment is taking the world by storm. It allows customers to pay for their purchases over installments and has rapidly shifted from being unheard of to commonplace.
The ASX tech shares behind BNPL have seen their market capitalisations soar as the coronavirus pandemic set in, with more and more customers choosing this payment method.
Let's look at how each of the major BNPL companies have grown.
Afterpay Ltd (ASX: APT)
Australia's largest BNPL provider by market capitalisation, Afterpay has expanded globally.
Originally launched in Australia and New Zealand, Afterpay expanded to the US and UK in search of new markets. The company launched in the US in 2018 and now boasts more than 5 million customers in this market. Last year, Afterpay launched in the UK as Clearpay, with more than 1 million customers signing up in the first 12 months.
Active merchant numbers have increased from 6000 in FY17 to over 50,000 in FY20. Afterpay has seen underlying sales grow from $560 million to $11.1 billion over the same period.
The BNPL provider had been aided by the shift to e-commerce prompted by the coronavirus pandemic – 4Q FY20 was its highest quarterly performance ever with underlying sales of $3.8 billion, a 127% increase of Q4 FY19. The Afterpay share price has reflected its success, increasing 133% this year.
Afterpay's next step is expansion into Canada and the roll out of in-store services in the US.
Splitit Ltd (ASX SPT)
Splitit operates a slightly different business model to Afterpay. Rather than extending credit to customers, as Afterpay does, Splitit allows customers to pay using their existing cards, with purchases split into monthly installments.
The company has partnered with Mastercard, Visa, and Stripe to improve its offering and reach. Splitit processed its first transaction in 2017. In the June quarter, Splitit recorded merchant sales volumes of US$65.4 million, up 260% year-on year.
Splitit earns revenue from transaction fees on orders placed through the Splitit platform, charging on average 4% per transaction. Splitit reported gross revenue of US$2.4 million in the June quarter, up 460% year-on-year.
The Splitit share price has grown similarly, and is up 123% so far this year. Splitit is focused on the acquisition of large merchants in target verticals to underpin sales volumes and revenue growth. Its strategic partnerships are expected to accelerate growth in future quarters.
Sezzle Inc (ASX: SZL)
Sezzle operates in the North American market and reports it has seen very little negative impact from the coronavirus pandemic.
Instead, the shift to online shopping prompted by the pandemic has positioned Sezzle as a key partner for merchants looking to offer more flexible payment options.
The June quarter saw record additions to active customer numbers, which grew to 326k, and active merchant numbers, which grew to 3.4k. Active customer repeat usage reached a new high of 87.5%.
According to Sezzle, a return to instore shopping has not meant a move away from online – between 29 June and 11 July retail online spend in the US was up 80.5% year on year.
Underlying merchant sales improved 57.5% quarter-on-quarter and 348% year-on-year in the June quarter. Sezzle ended the quarter with $55.7 million in cash and subsequently conducted an $80 million equity raising. This positions the company well to pursue its growth strategies. Investors have big expectations for the company with the Sezzle share price up 327% this year.
Sezzle management is aiming for an annualised run rate for underlying merchant sales of over US$1 billion per annum by the end of 2020.
Zip Co Ltd (ASX: Z1P)
Zip targets defensive industry verticals and a slightly older, more financially savvy customer segment. Focused on the retail, home, health, automotive, and travel industries, Zip launched a "shop everywhere" product earlier this year which allows Australian app users to pay with Zip at any online store.
This allows customers to pay for everyday needs such as groceries and bills and smooth repayments over time. Zip reported $570.7 million in transaction volumes in the June quarter. This gave annualised transaction volumes of $2.3 billion for FY20.
The economic downturn has raised some concerns over consumers' ability to make repayments, but Zip reports it has seen a strong credit performance with net bad debts of 2.24%.
According to Zip, this is in line with expectations and significantly outperforming the market. Monthly arrears, which are a forward indicator of future losses, actually reduced between March and June, an outstanding result in the current climate.
Zip reported full year revenue of $161.2 million (up 91% on FY19) with record quarterly revenue in the June quarter of $46.4 million (up 72% year on year). The Zip share price has risen in a similar fashion, up 74% this year.
Openpay Group Ltd (ASX: OPY)
Openpay is the most recent BNPL provider to list, debuting on the ASX last year at an offer price of $1.60 a share. Shares traded below that level until June, when they started climbing. The Openpay share price is now up 200% this year.
The increasing share price reflects Openpay's record growth in the June quarter when active customers grew 141% and active merchants grew 52%. Total transaction value grew to a record $192.8 million for the full year, up 98.2% compared to FY19. Growth accelerated in the June quarter which saw total transaction value grow 119% over the prior corresponding period.
Openpay operates in Australia and the UK where business surged. A major UK agreement with JD Sports was launched in May with initial trading above expectation. Openpay is set to debut its Openpay for business solution with Woolworths Group Ltd (ASX: WOW) shortly with integration well progressed. Revenue from this stream should start to flow in 1H FY21.
Foolish takeaway
The BNPL ASX tech shares differ somewhat in their target industries, customer segments, and geographies.
What they all have in common, however, is strong growth in customer numbers and transaction values. This has driven the growth in share prices as investors anticipate accelerating revenues.
