Sezzle is a fintech company that focuses on consumer buy now, pay later solutions. It allows customers to pay for purchases in four installments.
Sezzle primarily makes money by charging merchants a fee to offer customers the ability to pay for their purchase in installments. The company also makes money from fees for failed payments, reactivation fees, and rescheduling convenience fees, which allow customers to delay scheduled payments.
Founded in 2016 by Charlie Youakim, Paul Paradis, and Killian Brackely, the company is headquartered in Minneapolis, Minnesota. Initially, Sezzle wasn’t in the buy now, pay later payments business. They started by offering next-business-day ACH payments and cashback rewards. In 2017, they pivoted to their current business model.
Sezzle is a publicly traded company. It’s traded on the Australian Stock Exchange (ASX) under the symbol SZL.
What is Sezzle & How Does It Work?
Sezzle is a fintech company that offers buy now, pay later options for consumers. They’re in the alternative payments and credit space. Buy now, pay later payment products are aimed at people who want to finance their purchase but don’t want to use a credit card to do so.
Sezzle has had over 7.8 million user sign-ups but only has 3.4 million active users as of 2022.[1] The company has 47,000 merchant partners, and they are currently expanding beyond the US to Canada, Europe, and India.
While Sezzle can be used on a browser, the company also has a mobile app where customers can access exclusive brand offers, see their purchases, and track their payment schedules.
While Sezzle has traditionally offered financing for online purchases, the company has been expanding to offer in-store financing options. They are also pivoting to offer longer-term financing products for higher ticket items.
Sezzle allows customers to spread out their payments for purchases into four equal interest-free payments that are spread over six weeks. Customers make one payment at checkout and then make another payment every two weeks until the total is paid off.
Users sign up for their service, and then when they encounter a buy now, pay now option for Sezzle on a retailer’s website or in-store kiosk, they can choose to pay in installments rather than in a lump sum. At that point, Sezzle determines whether or not to approve the customer for the purchase in question.
Sezzle doesn’t give customers a spending limit like a credit card. Instead, they consider every request for financing individually. Over time, the purchasing power of customers increases as they make installment payments on time.
Sezzle’s decisions are near instant. Also, unlike credit cards, borrowing with Sezzle won’t affect your credit score. They also don’t charge interest or fees if you pay on time. In addition, you’re able to reschedule their payments to a time that works better for you if you need more time to make a payment.
The first time you reschedule a payment it’s free of charge. However, after that, you can still reschedule a payment a second and third time, but they charge a fee to do so. Payments must be rescheduled at least 48 hours before they are due. Sezzle also charges fees for failed payments. It does not charge interest on installment repayments.
Sezzle also offers a Sezzle Virtual Card that customers can use at participating retailers. The minimum dollar amount is $35 for making payments with a Virtual Card, and these cards are only available to US customers.
Sezzle also offers longer-term financing options. However, not everyone will qualify for this. Most of the long-term financing Sezzle enables is done by third-party financial partners who underwrite the amount. The amount that customers will pay for long-term financing will vary depending on the partner in question and the credit history of the person applying for financing.
With these loans, the user is pre-qualified by the financing partner, and their options for financing are presented. Pre-qualification doesn’t affect the user’s credit, and a hard credit check is not completed. However, once the user chooses a financing option, the financing partner might conduct a hard credit check.
At that point, the user signs the loan agreement, and their order is complete. They will then be able to make payments on that loan through the Sezzle account dashboard.
Sezzle also offers a buy now, pay later option designed to help consumers build their credit. This product is called Sezzle Up, and those who sign up for it will have their Sezzle payment history reported to credit bureaus. To qualify, users need to have paid off one Sezzle order on time, linked their bank account to Sezzle, and verified their persona information.
Sezzle offers a premium version of their service to US shoppers. For a $89.99 annual membership or a $9.99 monthly membership, users get access to exclusive features and brands. For example, they can purchase from companies that regular Sezzle users can’t purchase through like DoorDash and Lowe’s.
They also get exclusive deals and discounts, priority customer support, and one free extra payment rescheduled per order. This program is currently in the beta version, and not everyone has access to it.
Sezzle also offers a rewards program for its US customers. The program, called Sezzle Rewards, is a loyalty program where shoppers earn points for making payments on their Sezzle orders. The points can then be redeemed for rewards in their app. Every payment on a Sezzle order earns one point for every $1 paid.
For every 1,000 points, the user gets a $5 reward. Sezzle Premium subscribers get two points for every dollar they spend. Users can also use these rewards to put towards their payment of future Sezzle installments.
Sezzle also has an in-app store where shoppers can make purchases. However, they only allow customers who have a history of on-time payments to access these merchants. They also offer gift cards there for online and in-store payments to exclusive merchants.
These gift cards allow customers to shop in-store or online with merchants that aren’t available to normal Sezzle users.
The buy now, pay later sector is seen as an alternative to credit cards. However, some policymakers and experts are concerned that the sector isn’t being properly regulated because they aren’t technically issuing loans.[2]
Buy now, pay later companies have also faced criticism for being part of the predatory lending ecosystem since they encourage people to spend more than they can afford.[3]
Business Model of Sezzle
Sezzle is a fintech payment processing company that primarily operates according to a business-to-business fee-for-service model. That’s because the majority of the company’s income comes from fees merchants pay Sezzle in exchange for allowing them to offer buy now, pay later options to their customers.
However, the company’s business model also is focused on extending consumer credit. For their installment payment plans, Sezzle doesn’t charge interest but makes money from fees for rescheduled payments or failed payments.
This model is slightly different from some buy now, pay later companies who charge interest after the initial installment term ends if the full order price isn’t yet repaid. However, more buy now, pay later companies are moving away from charging interest after facing criticism for high-interest rates.
Sezzle does not finance their long-term credit options themselves. They have instead partnered with financial firms like Genesis Credit, Oportun, Ally Lending, and Bred/ADS.
This is a somewhat different model than other buy now, pay later solutions, many of which finance and service long-term purchases themselves. Others do so and then sell the servicing of their loans to financial institutions after they issue them. This likely helps Sezzle reduce their need for capital which reduces the need to take out loans or raise money through equity fundraising.
That also likely translates into less risk since they aren’t borrowing money from financial institutions themselves. However, by not using equity financing as a strategy, they likely end up having smaller profit margins. But they keep ownership and control of a larger percentage of their company than their competitors.
Buy now, pay later options are popular with merchants because statistically, they result in more completed sales and a higher average cost per order. Such results make the fees that merchants pay to offer these options worth it for companies. Some merchants have also stopped offering internal financing options cutting down on the cost of extending financing to customers.
Buy now, pay later options are popular with customers because they can make a purchase today and pay it back interest-free over six weeks. That’s often more convenient and cheaper than credit cards. It also is a great option for people who have bad credit or don’t have a credit card.
Sezzle’s credit-building option is also a unique product. Most buy now, pay later companies don’t offer products that build your credit. This makes Sezzle appealing to a demographic that is more likely to use buy now, pay later, and it helps them build their credit so that they can eventually get a credit card.
Sezzle’s Virtual Card also follows trends in the sector towards trying to find ways to fund in-store purchases. The long-term strategy is to integrate in-store buy now, pay later payments at every store, giving customers more flexibility and options around where they make their purchases.
Despite the fact that Sezzle has a sizable customer and merchant base, it is not a leader in the sector. The buy now, pay later space is incredibly competitive. Companies like AfterPay, Affirm, and Klarna are industry leaders. There are also a number of other players in the US and in global markets.
Sezzle’s performance is nowhere near Klarna’s, for example, which has 147 million active consumers, 400,000 retail partners, and processed $80 billion in sales in 2021. In comparison, Sezzle had just 3.4 million active customers and 47,000 merchants in 2021.
The challenge that many of these companies are facing is that all that competition makes their business model expensive. Most buy now, pay later companies are investing heavily in expanding into new territories in order to win a competitive advantage.
That means that companies have to compete with each other with razor-thin profit margins, and much of the funds they generate get reinvested in territory and merchant expansion initiatives. It is likely difficult for Sezzle to compete against companies like Afterpay on this since Afterpay is owned by Square, the popular payment processor, which has much deeper pockets.
Sezzle also faces competition from legacy online payment processors like PayPal. What’s more, companies like Apple and Amazon have recently announced their own pay later programs. Whether Sezzle will be able to compete with all these options remains to be seen.
Sezzle has considerable staffing, sales, marketing, and development expenses. In 2021, the company made $114.8 million in total income but had $43.4 million in transaction expenses, $5.5 million in third-party tech and data expenses, $9.2 million in marketing expenses, $15.7 million in administration expenses, and a number of other expenses.[4] In total, their expenses have added up to more than their income in the last two years.
How Does Sezzle Make Money?
Sezzle makes money in four different ways. These are merchant fees, fees for failed payments, reactivation fees, and what they call Rescheduling Convenience Fees which allow customers to delay scheduled payments.
The company does not break down the source of their revenue by income type. It is unclear how much Sezzle makes from each of these revenue streams.
Merchant Fees
Sezzle charges fees to their 47,000 merchant partners who want to offer their customers a buy now, pay later option when they make a purchase.
Sezzle charges merchants a standard fixed processing fee and a specific amount per transaction. While these fees can vary by industry classification and risk profile, their standard rate is a fee of 6.1% of the purchase price plus $0.30 per transaction.
They charge companies in riskier industries more but don’t list the amounts online. These fees are paid by merchants on both online and in-store purchases via Sezzle. They also charge a monthly fee of $15 to merchants with less than $300 in monthly orders.
Merchant fees make up the majority of Sezzle’s revenue.
Fees for failed Payments
While Sezzle does not charge interest to the consumers who use their service, they charge fees for failed payments. These are payments where Sezzle isn’t able to charge the user the installment payment they agreed to due to insufficient funds, expired cards, or incorrect card numbers.
While the fee can vary depending on where the customer lives, the company generally charges $10 as a failed payment fee. After two days of not paying their installment after a failed payment, Sezzle deactivates the customer’s account so they can’t make a new purchase.
Reactivation Fees
If a customer has had their account deactivated because they’ve failed to make a payment, Sezzle does not allow them to make new purchases. However, after they pay their payment they also have to pay a reactivation fee in order to get their account restored.
The reactivation fee costs $10. Sezzle separates the money they make from reactivation fees in their annual report. In 2021, they made $16.1 million in reactivation fees.[5] That suggest many of their customers fail to make payments on their accounts.
Rescheduling Convenience Fees
While Sezzle gives everyone one free opportunity to reschedule a payment on their installment and Sezzle Premium members two free reschedules, the company charges for rescheduling payments after that.
It costs $5 to reschedule a payment and must be done at least 48 hours in advance. This is another way that Sezzle makes money off consumers who use its service.
Sezzle Funding, Valuation & Revenue
Sezzle is a public company that trades on the Australian Stock Exchange (ASX) under the symbol SZL. As of September 2022, the company’s stock traded for just $0.40 USD with a valuation of $103.1 million AUD. The company went public in 2019 at an initial price of $1.22 per share.[6]
The company also talked about issuing a US IPO in the future in 2021.[7] However, it is unclear when they plan to issue their US IPO.
In total, the company has raised $301.6 million over 7 funding rounds.[8] Investors in the fintech company include Discover Financial Services and Bastion Management.[9]
The company’s income has grown considerably in recent years. In 2021, Sezzle brought in $114.8 million in income, which was an increase of 95.3% over 2020 when they brought in just $58.7 million in income.[10]
However, the company had expenses larger than their revenue in both years and had a net loss. They also wrote down a considerable amount in uncollectable fees both years.
| Year | Total Revenue | Expenses | Uncollectable |
|---|---|---|---|
| 2020 | $58.7 million | ($66.8 million) | ($19.5 million) |
| 2021 | $114.8 million | ($130.9 million) | ($52.5 million) |
Is Sezzle Profitable?
Sezzle is not profitable. But most other buy now, pay later companies aren’t profitable either. Due to heavy competition in the space, most are heavily investing in expansions in order to achieve greater market penetration. Sezzle seems to be doing the same with operating losses in both of the last two years.
Sezzle also has considerable bad debts that they’ve had to write down. In 2021, the company wrote down $52.5 million in uncollectable payments on just $114.8 million in revenue.[11] In 2020, the company also wrote down $19.5 million in uncollectable payments on $58.7 million in total income.[12]
With Sezzle’s considerable expenses, the company will have to implement strategies to reduce bad debts and cut costs just to stop their losses. If they’re not able to do that, the company could face a hard road to profitability.
Conclusion
In conclusion, Sezzle is a company that wants to empower the next generation by providing them with a payment platform that is transparent and inclusive. This allows people to buy what they want when they want it without having to worry about saving up for it or paying the full price at once.
We hope we’ve been able to give you a good picture of how Sezzle makes money and how their unique business model works. We think it’s a great way for the company to make money, and we’re excited to see how this model continues to grow and evolve with the company.
If you want to learn more about Sezzle and the buy now, pay later business model, check out these resources:
- [Sezzle’s website](https://sezzle.com/)
- [Sezzle’s blog](https://my.sezzle.com/blog/)
- [Sezzle’s Twitter account](https://twitter.com/sezzleinc)
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