How Splitit’s (ASX:SPT) business model differs from BNPL companies

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Splitit Limited (ASX:SPT) CEO Nandan Sheth discusses the buy now, pay later sector, and Splitit's business model partnerships.

Tim McGowen: We're talking today with fintech company Splitit (ASX:SPT), which powers the next generation of buy now, pay later through its merchant-branded instalment-as-a-service platform. It has an ASX code of SPT and a market cap $160 million. We have with us the Chief Executive Officer, Nandan Sheth. Nandan, thanks for your times. Welcome to Sydney.

Nandan Sheth: Thank you. Good to be here.

Tim McGowen: Now we're talking buy now, pay later, of course today, and it hasn't… 2022 wasn't a great year in terms of the sector and valuations as a whole. And you've also had some recent announcement. Zebit and Laybuy have announced to delist and then this morning Openpay has announced they're going into receivership. So, it's been a sector of kind of boom and bust. And of course the market's kind of moved away quickly from growth and funding growth, and it's now more about cash flow positive. What are your thoughts overall on the buy now, pay later sector given where we are at the moment?

Nandan Sheth: So, look, I've been in fintech for over 22 years and the fundamental truth is that when you're deploying other people's capital and you are lending to a subprime consumer base, the opportunity for greater write-offs are going to be present. Number two, when your model is super dependent on marketing and consumer acquisition, you take the write-offs, which could be anywhere between 300 to 500 basis points and millions and millions of dollars in consumer acquisition costs, you have to question what the path to profitability of those types of companies are. Having said that, I think the smaller companies will suffer more. I think there will be more consolidation in the space. However, the larger companies will find a way and leverage their consumer bases and become an embedded financial services provider to the millennials, Gen X, Gen Y, competing directly with banks.

Tim McGowen: How does Splitit's business model differ from other buy now, pay later companies?

Nandan Sheth: Great question. So, we don't call ourselves a buy now, pay later company. We're a fundamentally different product. We're card attached instalments. We leverage the credit that consumers already have on their cards. In the United States, there's $3 trillion worth of unused credit card availability on what's called open to buy. So, with that, our write-offs are minuscule. And number two, because we're a white labelled product, we're not out there creating a lot of marketing expense. So, our path to profitability is very clear. We need to continue to grow the top line, keep the costs under control, which we've done in the last six to eight months. And then with the write-offs being at 15 basis points for us versus 300, 400 basis points for the others, and having zero marketing costs because we're a B2B company, I think our chances are really good.

Tim McGowen: And you did say off camera when we were talking, you're based in the States. Is that where the opportunity is for Splitit?

Nandan Sheth: I think the opportunity's global. So, we're focused on four or five key markets. Clearly the United States is the largest market for us, but Europe is becoming a significant market. Australia, APAC is a great market for us, and we just entered into the Middle East and North Africa.

Tim McGowen: And you've made a number of significant announcements recently in regards to partnerships. Can you give us some colour on what that means for Splitit?

Nandan Sheth: Yeah. Our model is very dependent on partnerships. I believe that going to an aggregator that has thousands if not millions of merchants makes it a lot easier for us to scale and grow., one of the most successful payments platforms, competes directly with Stripe and Adyen, we're blessed to have them as a partner. They are a distribution channel for us globally. And on the back of that partnership, we are close to AliExpress, one of the largest e-commerce marketplaces in the world. Number two, we just announced a partnership within Ingenico, one of the first embedded one-touch buy now, pay later experiences in the world. Ingenico is one of the largest terminal manufacturers, owned by Apollo now. And the opportunity at the point of sale to me is significantly larger because many of the traditional buy now, pay later providers will find it very hard because of the friction in their model. With us, there is no friction because we're not underwriting, we're not registering the consumer. The opportunity just comes up on the terminal. You click whichever instalment program you want, and you're done.

Tim McGowen: And are there any integration issues working with some of these partnerships from a technology perspective?

Nandan Sheth: Great question. So, we have a very, very seasoned engineering team and a CTO. But in the payments industry, there's always integration challenges. The way we've dealt with those challenges are we've created a very modern API infrastructure that easily connects to the payment platforms, easily connects into hardware manufacturers, easily connects into our merchants. So, it's a single umbrella that allows us to simplify integrations.

Tim McGowen: Looking forward, say the next 6 to 12 months, what can shareholders look out for?

Nandan Sheth: Look, we've done a really good job of setting the right foundation for the future. As you know, we've launched a brand-new white-label product. We've created a lot of innovation in terms of how plans are delivered for our merchants. We're starting to get into the point of sale arena. And we've got a very lean model in terms of reducing the write-offs that we had down to about 15 basis points. So, the next 12 months is really capitalising on some of the successes that we've had. So, number one, making sure that we implement these large merchants and large partners that we've announced. That's going to create a very significant move in terms of our top line. The second is to work on other large partners and sign up those other large partners that are in the pipeline right now. In the next six months, you will hear about the next set of partners that we are going to announce. And number three is to continue to innovate with our partners on our product.

Tim McGowen: Nandan, nice to have you in Australia. Thanks for your time.

Nandan Sheth: Thank you very much. Good to be here.

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