Bigger purchases a BNPL growth opportunity

John Kavanagh

Payright, the latest buy now pay later contender to list on the ASX, hopes to differentiate its offering by funding larger purchases with longer repayment periods – a segment of the market it says is under-serviced.

Payright’s initial public offer closes on Thursday. The company aims to issue between 8.3 million and 16.7 million shares at A$1.20 a share. It could raise as much as $20 million.

Existing shareholders will hold 73.6 million shares in the listed company, which will have a market capitalisation of between $98.4 million and $108.4 million.

Payright has been operating since 2016, providing in-store and online buy now pay later services. It has 2400 merchant relationships and 30,000 customers.

At June 30 this year it had $47 million of gross receivables.

The company handles transaction values between $1000 and $30,000, with repayment periods of up to 48 months. Its merchant partners are in homewares, home improvements (including solar), health and beauty, education and automotive.

It caters to an older demographic than the usual BNPL provider, with 73 per cent of the credit volume provided to customers older than 35.

According to the prospectus, there is unmet demand for BNPL services that offers larger transaction sizes and flexible repayment terms, especially in service areas such as education.

It says the higher average transaction size has given the company a wide range of industry sectors and a diversified merchant mix.

“With the majority of BNPL players focused on the sub-$1000 segment of the market, there is significant opportunity and limited competition for transactions over $1000.

The company claims that its custom-built platform uses “multiple technology ecosystems” for credit assessment, customer verification, customer onboarding and repayment.

In 2019/20 its gross merchandise value was $68.1 million, of which 34.1 per cent was in the education sector. GMV rose from $41.5 million in 2018/19 and $6.4 million in 2017/18.

That GMV translated into revenue of 9.8 million. Sources of revenue are establishment fees, account keeping fees, repayment processing fees and merchant fees.

The prospectus makes no reference to late fees – a hot topic with ASIC.

After operating expenses of $7.5 million and a $4.6 million charge for expected credit loss, the company reported a loss of $8.1 million for the year to June.

Cash outflow from operating activities was $23.3 million in 2019/20, compared with an outflow of $24.7 million the previous year.

The company has a senior note program, with a balance of $35.5 million, All of the debt matures over the next two years.

As a result of the pandemic the arrears rate spiked earlier this year, with 30-day arrears reaching 4.3 per cent in May before falling back to 3.1 per cent in September.

The company is led by co-founders and joint chief executives Myles and Piers Redward. Myles Redward has worked at Moody’s, Bank of Ireland and GE Capital, where he was in charge of corporate planning.

Piers Redward was customer service and collections manager at Esanda Finance and national sales manager at Flexigroup.