Yesterday Moneyme Ltd (ASX: MME) announced it had reached a lending milestone of $500 million, and that it was launching a new payments processing service. Consequently, the Moneyme share price shot up and finished the day 20.47% higher. The crux of the announcement was not that the company was launching a payments processing service, but that it would offer a buy now, pay later (BNPL) function at the point of sale. A business move headed up by former Zip Co Ltd (ASX: Z1P) sales professionals.
I believe this exposes two core truths about the Australian fintech sector in 2020. First, the BNPL sector, or pay by instalments, is no longer revolutionary in Australia. And second, all of this and more is due to the failure of the big four Australian banks.
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The failure of the big four
The big four banks are fundamentally mortgage providers, with business loans and digital payments thrown in. They have been woeful at defending their turf. For instance, by population Australia is a small country, dominated by four large banks protected by legislation. So how on earth did Tyro Payments Ltd (ASX: TYR) become the fifth largest merchant acquiring bank, after the big four, by number of terminals? Moreover, bank lending to households via credit cards has been falling significantly since 2002. The Australian aversion to consumer debt has been growing for almost two decades. So why didn't any of them come up with Afterpay Ltd (ASX: APT)?
The Moneyme share price isn't the only one to benefit by being more accessible, user friendly and offering cheap pricing. To paraphrase Paul Keating, every pet shop galah has an opinion on fintech shares these days. Companies like CML Group Ltd (ASX: CGR) provide cashflow solutions to small and medium sized companies through innovative debtor finance platforms. Additionally, lenders such as WISR Ltd (ASX: WZR) provide short term personal finance, while RAIZ Invest Ltd (ASX: RZI) is helping the public to save money.
It is almost like watching the death of Borders Bookstores again after the rise of Amazon.com (NASDAQ: AMZN). Consequently, given that the big four banks have allowed these spaces to open up, what does this mean for Moneyme?
Is the Moneyme share price sustainable?
In my view, there is not a chance that the company's share price is sustainable. Not in the medium term anyway. It announced it had acquired 55 merchants. Zip Co has 23,600. Moreover, its most similar payments competitor, Tyro, has 32,000 Australian merchants. Not only that, but a BNPL service is something Tyro could quickly open up at the point of sale.
Furthermore, the Commonwealth Bank of Australia (ASX: CBA) is already doing so slowly via its part ownership of Klarna, the world's largest BNPL company. To illustrate further just how competitive this sector is now, the Splitit Ltd (ASX: SPT) model of working with the large credit cards, to break down payments into instalments, is also likely to eat into market share.
Foolish takeaway
The Australian buy now, pay later sector has become crowded to the point of normalcy. Accordingly, I believe the spike in the Moneyme share price is irrational optimism, not a sustainable valuation. Additionally, this is without considering the impacts of inevitable Australian regulation, and a raft of unlisted companies.
I think there are plenty of other growth opportunities in the fintech sector generally. However, within the BNPL sector, I believe it is now a race for the United States market. The startup companies that can establish a beachhead in that $5 trillion retail market are the ones that will survive this modern day gold rush.
