Can Beforepay replicate Afterpay when it lists on the ASX on Monday?

Shares for the payday advance provider are available for trade soon. What's the business like and who is behind it?

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Key Points

  • Beforepay will debut on the ASX on Monday
  • Despite a similar name to Afterpay, it is a payday advance provider
  • User numbers have exploded, but the company is burning through cash

Beforepay Group Limited (ASX: B4P) shares will list Monday on the ASX, with the fintech hoping to follow in the footsteps of its similarly named predecessor Afterpay Ltd (ASX: APT).

Afterpay shares were sold for $1 each at its initial public offering (IPO), before rising as high as $160.05 last year.

Beforepay is not a buy now, pay later provider, although it's in the related business of advancing money before a payday.

The business, which allows customers to access money before they receive their real pay packet, raises revenue from a 5% transaction fee.

Borrowers can pay back the debt from the coming paycheque, or over a 4-week period.

"Beforepay's product is designed to support customers who do not want to live beyond their means or accumulate revolving debt, but may need a bit of breathing room until they receive their next pay," the prospectus reads.

"Beforepay was committed to designing a business model that did not require consumers to take long-term, expensive and opaquely priced revolving debt."

Beforepay shares went for $3.41 apiece during its IPO, which closed last month.

All eyes will be on the stock price once it is unleashed on the ASX for general trade on Monday.

Strong growth but Beforepay burning through cash

The IPO gave Beforepay a market capitalisation of $158.4 million.

The company started signing up customers in August 2020 but by the time the prospectus was written in November, it had 125,000 active users.

Despite this growth, Beforepay is burning through cash like nobody's business.

The business made a $19.6 million net loss after tax for the 2021 financial year, off revenue of $4.5 million.

Beforepay chair and former Westpac Banking Corp (ASX: WBC) chief executive Brian Hartzer said the numbers are on the improve.

"Loss rates and costs continue to decrease and growth is increasing in both the acquisition and retention of a well-diversified customer base of working Australians," Hartzer said in November.

"This demonstrates the broad appeal of the product and a sizable market opportunity."

In an argument similar to buy now, pay later, Beforepay appeals to younger generations that want to avoid traditional forms of credit, according to Hartzer.

"Beforepay's business model creates a strong value proposition for customers looking to take control of their finances without turning to credit cards or other forms of revolving debt."

Beforepay was founded in 2019 by Tarek Ayoub, who was chief executive until he stepped aside last May. The current chief, Jamie Twiss, is another former Westpac executive.

Ayoub still holds an 11.8% stake after the IPO, worth $18.8 million.

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Afterpay Limited. The Motley Fool Australia owns and has recommended Afterpay Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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