With the share prices of buy now, pay later (BNPL) financial services companies like Afterpay Ltd (ASX: APT) and Zip Co Limited (ASX: Z1P) both soaring to new all-time highs in July, many investors may now be looking around for the next hot stock in the consumer lending space.
Along with Zip and Afterpay, there are a number of other junior players currently trading on the ASX that offer alternatives to the traditional forms of personal lending offered by the major banks. One such industry disruptor is New York-based BNPL fintech Splitit Payments Ltd (ASX: SPT).
Compared to Afterpay and Zip, which both now have market caps in the billions, Splitit is still relatively small potatoes, with a market cap barely touching $500 million. However, it is already a global company with operations in Europe and North America. The June quarter saw rapid growth across all the company's key financial metrics, with gross revenue a record US$2.4 million, an increase of 460% year-on-year and 246% quarter-on-quarter.
What is Splitit?
Splitit operates differently to both Afterpay and Zip, in that it doesn't actually provide customers with new lines of credit. Instead, it operates more like a budgeting tool, allowing customers to use their existing credit cards to make online purchases and then setting up automated repayment plans. Customers can tailor these plans so that they can pay for their purchases in smaller, more manageable instalments over time.
With Splitit, there are no credit applications for the customer to complete – because it utilises existing credit – and approvals are instantaneous. Additionally, Splitit charges no additional interest or late fees to the customer. Essentially, Splitit finances customer purchases and helps them repay them using plans that better suit their individual circumstances.
As it charges no interest to the customer, Splitit makes money by charging merchants a fee for its services. It markets itself as a service that can help business grow by expanding their potential customer-base, increasing checkout conversions and maximising average order value. Similar to the marketing for Afterpay or Zip, the idea is that customers will buy more when they have the option to manage their repayments over time.
Should you buy Splitit shares?
Splitit's business model is fairly unique amongst the BNPL crowd. It seeks to market itself as a more responsible alternative to other short-term lenders as it doesn't offer customers new forms of credit. Instead, it simply helps them manage their repayments.
It already has key strategic partnerships with both Mastercard and Visa, and its service is offered at a range of global online stores. This makes it well-positioned to benefit from consumer trends towards ecommerce emerging out of the COVID-19 pandemic.
But while there's a lot to recommend about Splitit over the short-term – its growth trajectory is hard to ignore – it still feels like it could easily be superseded by a similar offering from one of the major credit card companies themselves.
While it does offer a nifty, unique service, I think Splitit shares are a risky investment in the already crowded buy now, pay later sector. Personally, I'd stick with the bigger companies that already have the market penetration and brand name recognition.
