Zebit exit highlights challenges for profitless BNPL sector

George Lekakis

A clean out of the ASX-listed buy now pay later sector appears to be underway after  US-focused provider Zebit Inc signalled plans to delist its loss-making business from the local stock market.

The Californian-based company, which specialises in lending to “credit-challenged” American consumers, yesterday was granted a halt to trading in its securities pending a formal announcement of delisting from the ASX.

Zebit listed on the ASX in October 2020 after completing a A$35 million introductory public offer to investors who paid $1.58 for units in the company.

However, investor support for the company collapsed in the middle of last year amid concerns over operating losses and high bad debt charges.

The ASX-listed securities, which last traded at 19.5 Australian cents, have fallen more than 80 per cent since the start of July 2021.

News of the proposed delisting comes at a sensitive moment for Zebit, which is due to report its full year accounts before the end of the month.

According to the latest quarterly cashflow statements filed to the ASX last week, Zebit was holding $US 7.8 million of cash at the end of December – about US$3.6 million less than at the end of September.

The December cash flow report indicates there was a net cash outflow of US$14.6 million in the 12 months to the end of December.

Zebit operates an online marketplace and invites “credit-challenged” consumers to pay using its proprietary buy now pay later service.

The BNPL service allows customers clear their debts through instalments over six months without incurring penalties or late fees.

Although Zebit has expanded BNPL sales volumes and customer numbers since it joined the ASX, the growth has not translated into bottom line earnings.

In fact, the operating performance deteriorated in the six months to the end of June, with after-tax loss blowing out to US$7.2 million from US$4.6 million in the previous corresponding period.

Zebit could be a harbinger of a tsunami of ASX departures in the BNPL sector this year following a sustained dive in market valuations of industry players such as Openpay and Splitit in the last 12 months.

Critics of the sector such as leading payments consultant Grant Halverson believe the business models of local BNPL providers are unsustainable and flawed.

“The business models for locally listed BNPL companies are broken,” he said.

“Those models have been predicated on rapid growth in customers and sales but the world has now changed – you need positive net cash flow and earnings to justify valuations – and none of the BNPL companies listed on the ASX have that.”

According to research conducted by Halverson’s consulting firm McLean Roche, the average revenue per customer for 11 locally listed BNPL providers is currently running at only $4.75 a month.

“You can’t run a profitable business on that level of spend - most corner-stores are doing better,” Halverson said.