Inside BNPL Sezzle’s planned comeback after a brutal 2022
- Sezzle is a buy now pay later service.
- The startup scaled quickly during the e-commerce boom in 2021, but collapsed in 2022.
- CEO Charlie Youakim outlined the fintech’s comeback plan.
Fintech Sezzle is betting on a comeback after a miserable year for not only itself, but the wider buy-now-pay-later market.
US-based, Australian-listed BNPL was almost down for the count after a series of setbacks, from a failed acquisition to layoffs to analysts cutting their price target to just $0.01 AUD per share.
In many ways, Sezzle is a microcosm of the wider BNPL space. Like so many others, the startup capitalized on the fintech bubble — experiencing explosive growth from the surge in e-commerce and consumer spending during the pandemic — but when that bubble burst in 2022, it took Sezzle and several other BNPL darlings. with that.
After a difficult 2022, in which Sezzle reported a net loss of $38 million on Tuesday, the fintech is looking to bounce back by expanding its corporate clientele and expanding its credit-building offering.
However, there will be no easy return.
Beyond the gloss of BNPL being worn out for investors, there is an increasing number of payment options for consumers to choose from at checkout. When shoppers make a purchase online, BNPLs are forced to go up against the likes of Apple Pay, PayPal, traditional credit cards and loyalty rewards.
Murphy’s Law
True to Murphy’s Law, everything that could go wrong went wrong at Sezzle, Charlie Youakim, Sezzle’s CEO, told Insider.
Sezzle first saw the difficult road ahead in the latter half of 2021 when they saw their share price fall 74% from the end of June to the end of the year.
Looking for a lifeline, Sezzle considered being acquired.
In February 2022, Sezzle announced that it would be acquired by Zip, another Australian traded BNPL. The idea was to scale and reach profitability faster together. As Sezzle tried to make the acquisition work, the stock continued to fall.
In March, it laid off 20% of its North American workforce, saving the company $10 million. The cutting frenzy continued. Sezzle shut down its international operations, pulled the plug on some pending trading partnerships, reworked supplier contracts and went back to merchants to discuss repricing. Any trade deal that was unprofitable was repriced or cut, Youakim said.
Since both companies were public, it took longer than expected to complete the acquisition due to regulatory hurdles and technical integrations. But time was not on Sezzle’s side. In the end, both sides agreed to withdraw from the agreement in July 2022.
A day after Sezzle and Zip called off the deal, sell-side analysts at Royal Bank of Canada cut Sezzle’s price target from $12 AUD per share to $0.01 AUD per share and stopped covering the stock.
Sezzle’s struggles are not unique to the BNPL segment. In July 2022, Klarna saw its valuation drop 85%, from $45.6 billion to $6.7 billion. Affirm, another BNPL giant, reported in February 2023 that it was laying off 19% of its workforce after reporting dismal second-quarter earnings.
“There was a moment where a couple of these buy-now-pay-later companies were super high-flying public stocks,” which triggered investors to overvalue BNPL’s, Ben Savage, a partner at Clocktower Technology Ventures who also invested in BNPL player Bread Financial, told Insider.
Light at the end of the tunnel, maybe
The tide is slowly beginning to turn for Sezzle. In January, the company announced its second consecutive month of profitability. Amid a major rally in tech stocks, Sezzle has done particularly well. The share price has risen by 90% this year at the stock market close on March 3.
Sezzle also made some strategic pivots. The fintech expanded its focus from SMEs to corporate customers because more volume equals more transactions, which means Sezzle can charge more processing fees from its merchants. Some of the brand partnerships include Target and Bass Pro Shops.
“SMB is a great vertical because you can create a unified product and if you find what works, it just grows like a weed and quickly,” Youakim said. “When you land a company, you get a huge volume. The disadvantage is that the lead times can be years before you get anything. And then they actually balance each other out very well.”
But Clocktower’s Savage doesn’t expect smooth sailing for BNPLs as competition between payments heats up.
“Digital checkout is going to get more and more complicated,” Savage said. “It will start to look like for Americans what it looks like overseas, where there are a lot more different payment methods.”
American consumers are becoming increasingly receptive to alternative payment methods outside of the traditional credit card. The shift allows for a “diversification” of BNPL and other payment options, Savage said. This means that Sezzle will be competing against increasing competition.
Looking ahead, Youakim wants to launch more tools for Sezzle Up, an offering that helps younger, subprime customers build their credit history.
One product he wants to launch is a “super short-term,” two-day loan that’s used like a debit card, but “we’re really giving you a two-day loan,” Youakim said. That way, Sezzle can still provide credit to the customer, who can theoretically build on their credit score with short-term payments. Another product will be similar to a securitized credit card.
“There really is a segment here,” Youakim said of BNPL. “This is a product that customers love. And when you have a product that customers love and a solid moat that prevents new competitors from entering the space, you really have something on your hands.”
