'Amazon for the under-served' BNPL marketplace ready to list News05 Aug 2020

A new buy now, pay later e-commerce marketplace is headed for the stock exchange, but unlike rivals, it is purposefully aiming to reach those who would fail a credit check or standard risk assessment.

 

Inspired by his teenage years growing up in the Arizona desert, experiencing homelessness and living in caravan parks with a disabled mother, Zebit chief executive Marc Schneider is creating the "Amazon of the under-served".

 

Mr Schneider started his career at the World Bank and Inter-American Development Bank. He once led operations for former US Security Exchange Commission chairman Richard Breeden and just before founding Zebit was chief operating officer of private e-commerce sales site Zulily. He said he was able to "elevate" himself from poverty, but 100 million Americans were still living paycheck to paycheck, in part due to predatory lenders.

 

Having been the customer he was now servicing, Mr Schneider said he was determined to come up with a solution to help people get the goods and services they needed, without having to resort to the likes of payday lenders.

 

"No one was trying to solve the social and structural problem here in the US," he told The Australian Financial Review.

 

"These customers FICO (credit) scores tend to be lower ... and they tend to be risky so I had to work out how to underwrite these customers and create a big tech moat in terms of the data to de-risk them.

 

"The FICO score means nothing for a 'non-prime' consumer. About 45 million Americans don't even have a FICO score ... and it offers little insight into affordability, or someone's ability to make repayments over time."

 

No late fees

Zebit offers a buy now, pay later service with no late fees, penalties or interest payments – "no gotcha" moment – and the company operates its own e-commerce marketplace for customers to shop from.

 

When a person wants to sign up, they fill out an application that takes 90 seconds to complete and Zebit runs checks on identity, employment and income check and applies its own machine learning algorithms to determine what a person could afford to pay back in instalments. If a person agrees to give Zebit access to their bank data, it will also examine this. The shopper is then assigned a credit limit and they are allowed to spend more than their limit. Should they prove they can pay on time, the limit is extended.

 

The lowest amount a person can be approved for is $US128.

 

Zebit already has 630,000 people signed up to its marketplace, but only about 35 per cent have made purchases so far. Of its active customers, between 80-95 per cent make repeat orders.

 

Mr Schneider spent four years and tens of millions of dollars establishing the algorithms that power the platform and he said they are constantly evolving to become more and more accurate.

 

"We allocate you a credit line relevant to your income and affordability, and then you get access to the marketplace. It's not like Kogan or Amazon where a consumer can go from A to B and checkout," he said.

Bad debts

 

"Historically about 15 per cent of our sales in the business have been written off, representing 10-20 per cent of the customer base. But bad debts in the future will be much, much lower than what we saw in 2019 because that was a huge year for testing."

For customers that are kicked off the platform after 90 days for not making a repayment, they have the chance to be reinstated if they end up paying back the debt in full, but they will be reinstated at the $US128 starter amount.

 

Rather than making revenue from merchant fees, late fees or clipping the ticket of a transaction, Zebit makes its money from the goods it sells in the marketplace. The business has 75 vendors in its supply chain and sources goods from wholesalers, distributors and manufacturers and sells them to its customers.

 

"We make a 29 per cent gross margin, less the bad debts," Mr Schneider said. "We don't have all the gross margin-eating activities a typical e-commerce business would have. Our belief is we should get to 18-20 per cent net margin when we're at scale.

"We don’t need to discount products to entice people to buy, we don’t have to re-acquire a customer with another ad or discount code and we don’t buy inventory in advance and we don’t have warehouse or returns."

At the moment Zebit sells things such as electronics, furniture and beauty items, but if a customer wants to buy something not on the platform and can't afford to buy it directly, it also offers digital gift vouchers to other retailers and service providers which can be used at any time and don't expire.

 

While Zebit's focus is on the US market, Mr Schneider intends to expand to Europe and Latin America.

 

He has the goal of being a $1 billion business within three years and to be profitable by early 2022.

 

The company has raised $US55 million of venture capital funding from US investors and Mr Schneider chose to list on the ASX after seeing companies like Credible, Sezzle and Life360 list on the exchange and witnessing the excitement around the buy now, pay later companies and the strength of the financial services sector.

 

The company had planned to list in May but pushed back its plans after the COVID-19 outbreak. It appointed Shaw and Partners to manage the float and the prospectus should be filed in early September.

 

The business counts former Yahoo CEO and PayPal president Scott Thompson as one of its board members.

 

"We have to get big fast and establish our footprint because we need to be visible to many more millions of customers," Mr Schneider said.

 

"In the middle of the desert in Arizona, there were no options. When you had poor credit or no access to money to finance purchases, you were stuck. If my mother took out a payday loan ... it was a huge trap if you missed any payments. All those same structures are what 100 million Americans are still facing today."

 

Article source: AFR, 5 August 2020

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