The top 5 buy-now-pay-later stocks on the ASX

The buy-now-pay-later (BNPL) sector has emerged as one of the most flourishing growth areas for ASX-listed fintech stocks.

BNPL is essentially a form of personal consumer finance, enabling customers to purchase goods and services now before paying for them in instalments over subsequent weeks or months.

Many BNPL platforms do not charge interest, instead levying set fees for the provision of their financial services. These fees can assume a range of forms, including monthly account fees, payment processing fees and late fees for missed payments.

BNPL services are often integrated with retail platforms or offered in conjunction with credit card networks such as Mastercard and Visa.

The popularity of BNPL platforms surged during the Covid pandemic, with consumers acquiring the habit of using their services for online shopping while confined at home.

The convenience of obtaining approval from BNPL platforms has also helped to drive their popularity. Many platforms will approve applications within seconds and apply looser approval criteria to prospective borrowers.

In Australia, BNPL services have proven especially popular with the increasing number of consumers who work on a freelance or contract basis and, as a consequence, are subject to uneven cash flows.

As a result, ASX-listed BNPL stocks such as Afterpay skyrocketed during the pandemic. They have since tumbled back to multi-year lows in 2022, as heavy inflation and interest rate hikes create uncertainty for consumers.

BNPL stocks could see their share prices bounce back before long, however, if central banks ease up on rate hikes and consumer sentiment improves.

Here are the five top BNPL platforms currently listed on the ASX with their market capitalisation as of September 2022.

1. Block
2. Zip
3. Humm
4. Sezzle
5. Splitit

1. Block: $60.65 billion

Block is a US fintech company launched by Twitter co-founder and former CEO Jack Dorsey in 2009. Its key focus is payment technology and financial inclusion, targeting small businesses with point-of-sale systems that use smart devices.

In 2022 Block entered the BNPL space with the acquisition of Afterpay, one of the pathfinders for the Australian sector, in a sizeable $29 billion deal.

Before its acquisition, Afterpay had helped to kick off the BNPL trend via the success of its business model both at home in Australia and abroad in other markets.

It employs a business model that splits payments into four instalments and does not charge interest for customers who pay on schedule.

This business model has enabled Afterpay to acquire millions of global customers and hundreds of thousands of merchant partners across markets, including Australia, the US, Canada, the UK, New Zealand and the Eurozone.

2. Zip: $609.91 million

Zip is considered to be the leading rival to Afterpay in the Australian BNPL market. Both companies were founded in Sydney, with Zip launching in 2013, just a year before Afterpay.

Zip has since expanded into 13 markets around the globe and entered partnerships with over 90,000 merchants. According to its FY2022 financial results, Zip had over 11.4 million customers as of the end of the second half, an increase of 56% compared to the same period the previous year.

The BNPL platform offers interest-free options with its Zip Pay and Zip Money products, along with the flexibility to spread the payments for purchases over weekly, fortnightly or monthly instalments.

Zip expanded its forays into overseas markets in 2021 with the acquisition of Middle Eastern BNPL platform Spotti and European platform Twisto.

3. Humm: $252.59 million

Like Afterpay and Zipp, Humm employs a BNPL model that specialises in offering interest-free instalment loans to consumers.

Humm provides consumer loans of up to $30,000 to consumers and does not charge any monthly fees or establishment fees for purchases of under $2,000.

Its BNPL services are integrated with at least a dozen e-commerce platforms, including Shopify, WooCommerce and CubeCart.

According to its FY2022 financial report, as of the end of June 2022 Humm had total active customers of 2.7 million. In the 2022 financial year, Humm delivered a Cash Net Profit After Tax of $51.1 million.

The company recently sought a tie-up with Latitude Group, although the deal eventually collapsed in June 2022.

4. Sezzle: $131.37 million

Headquartered in the US city of Minneapolis, Sezzle offers a simple BNPL model of no interest fees and payments in four instalments over a period of six weeks.

Sezzle says it has 3.4 million active consumers and 47,900 active merchants, with underlying merchant sales of US$1.9 billion over the past 12 months.

The platform has teamed up with a broad range of e-commerce providers, including Shopify, WooCommerce, DigitalHaus and B2Commerce.

In a July update, Sezzle highlighted efforts to achieve positive free cash flow and profitability. The company expects to generate US$40 million in annualised revenue and cost savings by means of current initiatives.

5. Splitit: $70.71 million

Splitit has sought to distinguish itself from its peers with an ‘instalments-as-a-service’ business model that makes BNPL services more widely accessible.

This model provides businesses with their own merchant-branded BNPL services that are embedded in their current purchasing flows via a single network API.

Splitit refers to its Instalments-as-a-Service model as a ‘white-label solution’ that makes use of the existing credit cards of consumers to expedite the approval and payment process.

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