Top 10 BNPL Stocks on the ASX in 2021

With the share prices of many companies in the Buy Now Pay Later (BNPL) sector proving volatile in recent times, in the following article we examine:

• What is BNPL?
• How does BNPL work?
• Top 10 BNPL ASX Stocks
• Sector Operational Comparisons
• How to trade and invest in BNPL stocks

What is BNPL?

Buy Now Pay Later (BNPL) is a relatively new, instalments-based payments method, typically used to make discretionary purchases – both in-store and online.

Typically, companies in the sector, such as Afterpay or Sezzle do not charge customer’s interest on their BNPL purchases, but rather charge late fees should a customer fail to make a pre-arranged payment. This customer-centric approach to business – as well as a number of other factors – has seen the sector grow rapidly in recent years, as more traditional forms of credit, such as credit cards, have progressively fallen out of favour.

In addition to that, many have argued that the coronavirus pandemic – which has seen the adoption of e-commerce accelerate on a global scale – proven to be a key tailwind for the sector. Such an argument looks well reflected in the recent results of many BNPL companies.

How does BNPL work?

As a point of sale (POS) financing option, BNPL products have grown increasingly popular in recent times. But how exactly do they work?

Using Afterpay as a basic example:

A prospective customer wants to make a purchase online. They find an item they adore. They go to checkout. They select Afterpay as their preferred payment method. The customer places the order.

Firstly, in many cases Afterpay will require its users to make a 25% up-front payment for product, in-line with the company’s emphasis on responsible spending.

Following that, the remaining balance from the online purchase will be split into four even instalments, withdrawn from a customer’s linked account automatically every two weeks. That is, they’ll pay it in 4. Customers have the option of making additional payments as a means of paying down their Afterpay balance quicker.

Turning to the other side of this equation: Afterpay has displaced the risk that would otherwise be bore by the merchant. When the customer places the order, Afterpay pays the value of the customer’s purchase to the merchant, while the merchant pays a fee to Afterpay for facilitating the purchase – expressed in part through a BNPL company’s net transaction margin (NTM) – typically represented as a percentage of underlying sales.

Why would a merchant do this?

One, and as noted above, it removes the credit risk for the merchant: with a merchant paid in-full and immediately. If the customer is unable to make a payment on the purchase made, this issue has been deferred to Afterpay.

Two, the potential to see an increase in the goods purchased, that is a ‘basket size’ increase. According to research from Klarna – a privately held, Swedish BNPL company and bank – it was reported that e-commerce stores have in some cases seen their basket size increase by up to 68% by allowing the use of BNPL as a payment option.

Three, access to a bigger more diverse customer-base. With Afterpay and Zip alone boasting millions of active customers – and with many of those customers increasing their transaction averages with the platform overtime, the appeal of having increased visibility on a BNPL platform is intuitive.

Ultimately, all of this reinforces a two-sided network effect that has seen BNPL companies such as Afterpay grow so rapidly.

‘For two-sided marketplaces such as Airbnb, eBay, and others, the organic share of new users grows as more suppliers (housing, sellers) and buyers want to join the network to get access — because of the potential revenue and variety of choice there,’ Li Jin and D’Arcy Coolican, from Andreessen Horowitz argued.

Top 10 BNPL ASX Stocks to Watch in 2021 and Beyond

With the above considered, below we look at the top BNPL stocks listed on the Australian stock exchange (ASX). Beyond that, we also examine how these companies have performed so far in 2021

1. Afterpay (APT)
2. Zip (Z1P)
3. Latitude (LFS)
4. Sezzle (SZL)
5. Humm (HUM)
6. Splitit (SPT)
7. Openpay (OPY)
8. Ioupay (IOU)
9. LayBuy (LBY)
10. Douugh (DOU)

BNPL Comparison Table

^{*Figures in the above table correct as of 7 September, 2021.}

Afterpay share price: +11.11% YTD

One of the leading players in the BNPL space, Afterpay has seen both its operational metrics and share price surge in recent years – as the sector continues to benefit from an accelerated shift to e-commerce.

For the full-year (FY21), Afterpay reported:

• Underlying sales (transaction volumes) of $21.1 billion, up 90%
• 16.2 million active users
• 98.2 thousand active merchants
• Income margin of 3.9%, consistent year-on-year

Read our guide on How to Buy, Sell and Short Afterpay here.

Zip share price: +24.69% YTD

The last couple of years have proven to be a ‘game changer’ for Zip – with the company announcing strong growth as well as the acquisition of the US-based BNPL company, QuadPay, in that period. That acquisition has proven fruitful already, with QuadPay’s transaction volumes close to eclipsing Zip’s Australian volumes, as reported in the third quarter of FY21.

Beyond that, for the full-year (FY21) Zip reported:

• Transaction volumes of $5.8 billion, up 176%
• Revenues of $403.2 million, up 150%
• Total active customers hit 7.3 million
• Full-year cash transaction margins reached 3.5%

Speaking of those results, Zip’s Managing Director and Chief Executive Officer, Larry Diamond said:

'This has been a truly transformational 12 months as the business has continued to deliver, despite the most exceptional global economic conditions.’

Latitude share price -16.30% YTD

Latitude is the latest BNPL company to list on the ASX, debuting on April 20, 2021, with a market capitalisation in excess of $2 billion. Describing itself as an installments and lending business, one of the company's key growth priorities is to further develop and improve its BNPL offering.

The company’s marketing materials highlight Latitude’s emphasis on capturing a younger, likely fashion focused audience. 'FOMO PROMO', 'epic brands! and ‘Epic deals!' were the key marketing slogans plastered across the company’s prospectus, for example. Whatever one makes of that approach, the company stands as one of the largest diversified BNPL companies in Australia.

Here’s how Latitude performed during the first half of 2021 (H1 FY21), with the company reporting:

• Total volumes of $3.6 billion, up 5%
• Interim statutory profits (NPAT) of $89.5 million, up 524%
• Cash profits (NPAT) of $121 million, up 81%

• An interim dividend of 7.85 cents per share was declared

Sezzle share price: +6.86% YTD

The Sezzle share price has traded flatly in 2021 – but the company has nonetheless continued to notch up strong growth across all of its key operational metrics.

For the second quarter of FY21, Sezzle reported:

• Underlying merchant sales during the quarter of US$411.1 million, up 118.7%
• Income as a percentage of underlying sales was 5.9%
• Total active customers at the close of Q2 were 2.9 million
• Active Consumer repeat usage hit 91.6% in the quarter

Speaking of these results, Sezzle’s CEO, Charlie Youakim said:

'We are excited to report a quarter that reflects new highs in UMS, Active Consumers, Active Merchants, and Repeat Usage.’

Sezzle, like Afterpay, places a strong emphasis on fashion-centric purchases while also stressing that BNPL can be a force for positive change in the lives of its customers.

Humm share price: -20.80% YTD

Speaking to how significant of an opportunity companies believe the BNPL sector to be – FlexiGroup in 2020 announced that it would be rebranding itself to Humm – the company's flagship BNPL offering.

This move, said the company at the time, will 'simplify our story to our customers and retailers, and clarify our significant market position as a leading BNPL player and provider of long term interest free solutions.'

If you’re based in Australia, you’ve likely seen Humm’s ‘big bird’ advertisements on billboards.

How has this translated into operational performance for the company’s BNPL segment? This is what Humm reported for the full-year ending 30 June, 2021:

• Total active customers of 2.7 million
• Total group volume of $2.6 billion, up 8.2%, made up of BNPL volumes of $1.03 billion, up 31%
• A full-year profit (NPAT) of $68.4 million, up 121%
• Statutory NPAT of $60.1 million, up 160.2%

Splitit share price: -66.92% YTD

Splitit differs somewhat from a number of the BNPL companies discussed thus far in that its customers can use their existing debit card to split their payments over a number of instalments, which according to the company: ‘keeps their payments small so they keep more of their money for living’. These purchases, the company goes on to say, can be divided into ‘fee or interest-free monthly installments, without the need for registration, application or approval.’

For the most recent half, Splitit reported:

• Sales volume of US$172.5 million, up 94%
• Total gross revenue of US$5.5 million, up 79.7%
• Total merchants of 2.8 thousand, up 167%
• Total Shoppers of 566 thousand, up 83%

Openpay share price: -43.04% YTD

Like Splitit – Openpay's BNPL offering diverges somewhat from the likes of Sezzle and Afterpay. Unlike those companies, which target lower value, discretionary transactions, Openpay offers its users BNPL ‘plans’, which span anywhere ‘from between 2 and 24 months in duration, and of values between $50 and $20,000.’

Moreover, in its IPO prospectus, Openpay noted that it was targeting a substantially older audience, which the company considers to be more financially savvy and therefore lower risk.

For the full-year ending 30 June, Openpay reported the following:

• Transaction volumes of $339 million, up 77%
• Active plans reached 2.0 million, up an impressive 141%
• Active customers came in at 541 thousand for the close of fiscal 2021
• Active merchants hit 3.8 thousand, up 77%

IOUpay share price: +55.00% YTD

Like Flexigroup before it, IOUpay recently changed its name (from Isentric to IOUpay, in a decision that looks to more accurately represent the company’s business focus and ambitions. To that end, IOUpay describes itself as a fintech with a strong focus on Mobile Banking and Digital Payments & Services, with its core operations based in South East Asia (SEA).

In August the company provided an extensive update into its BNPL operations. Here the company provided a preliminary update of its BNPL operations for first-half of the September quarter, including:

• $2.9 million in total volumes against 250 thousand in transaction revenues
• 1.4 thousand merchants have been onboarded, up 72% since June 30
• 1.9 thousand consumer created accounts, up 333% since June 30
• The company has launched a digital market strategy to promote its BNPL product

LayBuy share price: -35% YTD

Laybuy represents one of the newest BNPL companies to list in Australia, launching its initial public offering in September, 2020. Despite that, the share price has proven volatile since the IPO, drifting significantly lower since listing. Like the other companies discussed above, LayBuy has seen strong growth across its key metrics, as the sector continues to benefit from the way consumers purchase their goods and interact with merchants.

Underscoring this popularity, as part of its most recent quarterly (Q1 FY21) operational results update, LayBuy reported:

• Total merchant volumes of NZ$184 million, up 58%
• Total income of NZ$10.4 million, up 70%
• A net transaction margin of 2.0%, a significant increase year-on-year
• Active customers of 356 thousand and active merchants of 4.8 thousand

Douugh share price: -2.9% YTD

Innovative fintech and neobank Douugh, in December 2020 announced it had partnered with Humm Group to launch its own BNPL product.

According to the company, the BNPL offering would allow customers to borrow up to $1,000 and pay it off over 6 (not 4) weekly installments.

The product will be made available through Douugh’s native app and is expected to drive new customers to the platform.

Douugh said it would aiming to launch the product in the US market as well as other international markets that both companies deem suitable, such as Australia.

'Through our proposed joint venture with Douugh, we are taking our first steps into the United States as a company. At the same time, we are demonstrating how Humm Ventures can create innovative and novel ways to take Humm's world class technology and capabilities and expand its relevance and distribution,’ said Humm's CEO, Rebecca James.

Most recently, the company provided the following update on this BNPL partnership as part of its latest quarterly activities report, saying:

'The JV partners are still working together to enter into a final agreement with a third party issuing bank, which will include the breakdown of revenue between the parties and timeline to launch.'

How to trade and invest in BNPL stocks

You can invest in any of the BNPL stocks we have discussed today in two ways: either through share trading or derivatives trading. Share trading means that you take direct ownership of a company’s stock, meaning you could potentially profit if the share price increases in value or benefit from any dividends a company might decide to pay.

By comparison to owning the shares outright, derivatives trading – such as CFD trading – allows you to speculate on the price movement of Afterpay shares without actually taking ownership of them. CFD trading may prove attractive to some investors for a number of reasons, including the flexibility to trade stocks long and short, the ease of which it allows one to hedge, as well as the ability to gain larger exposure to an asset through leverage.

Follow the simple steps below to start investing or trading BNPL stocks: