A three-year-old Minneapolis company that provides a way for people without credit records to buy things online is ready to go public this week — in Australia.
The company, Sezzle Inc., connects retailers with buyers they can’t serve with websites that rely on credit card payments, particularly teenagers and adults with poor or no credit histories. It is listing itself on the Australian Securities Exchange, where stocks of its main rivals are also traded.
The “buy now, pay later” formula Sezzle uses is more common outside the United States. A Swedish company, Klarna, popularized it in Europe. In Australia, people under 30 use buy-now-pay-later accounts more than credit cards. That country’s stock exchange lists several financial tech firms that provide such services. The biggest, Melbourne-based Afterpay Touch Group, is growing its U.S. business quickly.
Sezzle aims to raise $30 million with the initial public offering that takes place Tuesday morning in Sydney, Monday evening Minnesota time. It will use the money to expand, sign up more retailers and hire more people at its warehouse office near Target Center.
Sezzle executives were unavailable for comment last week because of a quiet period leading up to the IPO. But as far back as last fall, they said they were thinking about a stock offering in Australia, where valuations soared for similar firms like Afterpay and Splitit.
“Now is the right time to go public in Australia because investor demand is very high,” Paul Paradis, Sezzle’s chief revenue officer, said in May. “It gives us access to a large amount of capital at a very critical inflection point for the company.”
The business of paying for things is being upended by mobile gadgets, biometrics and new ways of determining a person’s ability to pay a bill. For decades, the credit-ratings system determined a person’s borrowing ability. But fintech firms like Sezzle are learning new things about when people are worthwhile credit risks.
“They’re using different metrics to assess risk, data that traditional lenders don’t have access to,” says Arieh Levi, a senior analyst at CB Insights, a financial services market research firm in New York.
Governments are racing to stay on top of the payments revolution. Australia’s anti-money-laundering regulators last month began scrutinizing whether Afterpay was doing enough to verify its shoppers’ identities. Afterpay said it is cooperating with the investigation. “We recognize that ‘buy now, pay later’ is a new and maturing sector not only for our customers, but also for regulators,” it said.
Sezzle is racing Afterpay for market share in the United States and Canada. Through the first three months of this year, Sezzle had lined up 3,300 retailers to use its payment system and done transactions with more than 270,000 shoppers. Afterpay last month announced it had signed up 3,300 retailers and had done more than 1 million transactions with its system in the U.S.
Sezzle’s revenue, collected through fees paid by retailers, was $1.6 million last year. But in just the first three months of this year, it collected $1.4 million in merchant fees.
Sezzle’s decision to go public in another country is a gamble because, as it grows, its capital needs might outgrow the capacity of the Australian market. “It can become a challenge for companies to ultimately move to the U.S., where they do want to be because it’s the most liquid market in the world,” said Neil Riley, global head of equity syndicate at Piper Jaffray, a Minneapolis investment bank.
The IPO process in Australia is similar to that of the U.S. in many ways. One area of contrast: While the initial price of a stock is fluid in the U.S. up until the night before trading, it is set weeks before in Australia. Sezzle is selling 35.7 million shares at 1.22 Australian dollars, which will yield proceeds of 43.6 million Australian dollars, or just over $30 million at Friday’s exchange rate.
And documents in an Australian IPO are also designed to be easily understood by individuals. Sezzle’s 170-page IPO document is filled with pictures, colorful charts and Q & A tables, resembling a travel brochure more than a regulatory form.
In a letter inside, founder and chief executive Charlie Youakim wrote, “I believe that consumers are not getting the financial support they deserve, and that issue is especially prevalent with younger consumers. The company is focused on correcting this issue and serving the consumer in a financially responsible way.”
The stock offered in the IPO represents 20% of all Sezzle shares. Youakim will own 49.7% of its shares after the listing. Paradis will have roughly 6% and other Sezzle executives about 3%.
At its listing price, Sezzle’s market valuation is about $111 million, making it the second Minnesota tech startup in less than a year to reach the public market with a nine-figure valuation. In December, Bite Squad, a Minneapolis app-based food-delivery service formed in 2012, was purchased by publicly traded rival Waitr Holdings Inc. for $321 million.
Sezzle started in 2016 as a developer of debit-card payment technology, aiming to save merchants the costs of credit card transactions. But it changed direction in 2017 after realizing it would have more success helping retailers build sales than cut costs.
Shoppers encounter Sezzle’s payment system when they complete an online order on retailers that offer it. A person can choose Sezzle instead of a credit card or PayPal at checkout. Sezzle then pays the transaction and sets up an interest-free, six-week installment plan for the shopper to repay it.
The company restricts the amount a first-time user can buy. Repeat customers are allowed to spend more if they paid off previous purchases on time. Last year, Sezzle failed to collect $940,000 of $31 million that shoppers spent through its system, a 3% delinquency rate that’s comparable to what credit card firms experience.