Buy now, pay later takes another area

Forget retail, ‘buy now pay later’ can now help you renovate your home too.

While Google search suggestions lead us to believe people want to buy now pay later their shoes, clothes, electronics and flights, from India, with bad credit and no credit check, the reality would seem different in Australia at least. 

Rather than apply for short-term loans, homeowners are going through buy now pay later lenders to upgrade their homes. It may not be the biggest name in the space, but Payright has seen the most impressive growth in the home improvements vertical over the last quarter.

As it homes in on a lucrative market, Payright has the added benefit of building its business away from the scrutiny of the public sector. It's one of the last remaining private buy now pay later lenders in Australia.

Payright launched in 2016, less than a year after its best-known competitor. It has nearly doubled revenue quarter-on-quarter and annualised volume is now tracking at over $60 million as per its most recent monthly run rate. 

In the past financial year, Payright saw revenue growth of 650 per cent, compared to the previous 12 months. It also saw a 400 per cent increase in customer numbers.

To date, Payright has partnered with more than 1500 merchants, with around 100 new merchants joining the platform every month. All up, Payright has written 18,000 payment plans totalling approximately $45 million.

These figures sold Escala Partners, with the wealth manager last month completing an oversubscribed Payright capital raise for $27 million. Corporate advisory firm Henslow jointly led the Series D raise which was a combination of debt ($22 million) and equity ($5 million) aimed squarely at sophisticated and institutional investors.

Escala Partners has shared that two institutions are now on the Payright register along with several sophisticated investors from their client base.

Including previous rounds, Payright has raised more than $55 million. Payright co-founder and co-CEO, Myles Redward, says the recent raise will enable growth in the loan book and increase volume. Payright employs more than 40 people, across sales, technology, operations and finance. Next the business will push into New Zealand.

Home improvement

Redward tells Eureka Report their push into the home improvement sector, where the banks have pulled back on lending, has been “relatively recent, but very deliberate”.  

“We identified that as a key opportunity, perhaps an underutilised market, in the buy now pay later space at the back end of last year,” he says.

“We saw about 40 per cent growth in that sector alone for the last quarter, such is the demand for a buy now pay later provider in things like solar panels. It fits nicely around our broader approach to considered purchases – if you are putting solar panels on your roof, you are a homeowner, and a homeowner has a better risk profile.”

Retail is the name of the game for Zip and Afterpay, where an average order comes in around $150. Payright is focused on bigger-ticket sales, where the average transaction size is $2500 but it extends credit up to $20,000. Flexigroup’s recently rebranded Humm, which last month reported to have 17 per cent of the buy now pay later (BNPL) market, seems to be picking up business everywhere in between with its Big Things and Little Things brands.

Myles Redward, the co-founder and current joint CEO of Payright, in fact says that Certegy Ezi-Pay (now Humm) was identified as the major competitor in the market at the time. Redward started Payright as a compete model with his brother, Piers, who was formerly the national manager of consumer finance at Flexigroup.

Safety in homeowners

As Afterpay and then Zip zoomed ahead, Payright took a little longer to get its online model right, watching many peers IPO in the process. All three platforms run a four-instalment model, but Payright, with its bigger basket sizes, will extend credit up to 36 months in some cases.

That may delay receivables, but Payright does its part to make up for this with an account establishment fee up to $59.95, a monthly account keeping charge of $3.50, and a payment processing fee of $2.95 for each payment. Afterpay charges late fees only, and Zip's point of difference is charging fees only for purchases over $1000. 

Most of Payright's business right now is tied up in photography, followed by health and home improvement. Retail ranks lower down the list. 

“The common theme running through all our merchants, and it’s a key point of difference between us and some of the others, ours is a really considered purchase being a high price point,” says Myles Redward.

“There are a lot of good benefits to that, and that’s around the risk profile of the end customer, where that demographic typically does represent a safe and secure customer.”

Payright has more exposure to QLD than its competition, with around 26 per cent of its customers residing in the sunshine state, followed by Victoria and then NSW. 

All things must be considered. When house prices fall, there’s a theory that investors hold back on buying and try and improve upon their existing properties instead. In an extended downturn, that theory may fall apart.

Competition creates better conditions

All buy now pay later models appear seamlessly the same on the surface, however, there are differences even from a customer point of view.

For the purposes of this piece, it’s worth considering the alternative, being a traditional line of credit. Indeed, lenders may offer interest-free periods for solar panels beyond 36 months.

But it comes back to ease of onboarding. Like when buying a house or car, deals can fall over because financing falls through.

Payright claims to be partner-led, with a consultative approach to partnering with merchants. If this means creating favourable conditions for merchants, it’s likely Payright has a cost leadership strategy where it undercuts other buy now pay later competitors on its deals with merchants. 

In other words, it could become a race to the bottom for price, which means consumers should only end up with better cost outcomes by using these services, eventually.