US buy now pay later (BNPL) startup Sezzle has just announced its landing in Brazil to compete for a share of the growing market for BNPL solutions targeted at small and medium-sized businesses (SMBs). Founded by Charlie Youakim, Paul Paradis, and Killian Brackey and recently acquired by the Australian Zip, Sezzle considers the country as the gateway to the Latin American market.
Brazil operation will be led by João Pedro Teles (CEO), Leonardo Villanova (CMO), Tiago Cajahyba (CTO), and Carlos Leão (CFO) and will be backed by an initial investment of BRL 7 million. The startup plans to invest another BRL 15 million in the second year and BRL 25 million in the third. In an interview with LABS, Teles explained that the fintech‘s strategy is to finance its operation in the country through fundraising. “Our plan is to get our first round by the first quarter of 2023. The investment before that comes from the US parent company, after that it will come from funds raised by Sezzle Brazil.”
Sezzle debuts in Brazil by integrating its solution into the Nuvemshop‘s platform, which means that the fintech‘s BNPL could be offered as a payment method by more than 90,000 online stores for their clients. Sezzle projects to reach 500 partner stores and 10,000 customers in the next twelve months and, in three years, to handle BRL 470 million in sales through its BNPL solution, yielding revenue of BRL 30 to 35 million per year.
“The real BNPL”
To scale up its operation, Sezzle relies on what it calls “the real BNPL”. Teles argues that when BNPL started to become popular in other countries, in Brazil part of the industry was quick to say that there was nothing new in the product, that it was the same that the so-called “crediário”, a popular type of installment plan in Brazil, but, in fact, there are some key differences between the two products.
“BNPL became popular abroad by offering short-term loans with low-ticket. It was a huge success because while long-term financing for buying a home or student loans was common, installment for consumer goods purchases was not. It was a success, especially among those who didn’t have access to other financing options and installment plans,” he explained.
In the CEO’s view, besides providing access to people that do not meet the criteria to get a credit card or a traditional installment plan, the main differential of the classic BNPL is that there is no fee charged on the installments and no fixed cost to use it.
Sezzle’s BNPL charges consumers only two fees: BRL 10 to reactivate an account blocked due to default, and BRL 20 to reschedule installments payment (the first rescheduling is free), to avoid the account being blocked. According to the startup, blocking the account of default clients inhibits over-indebtedness and encourages responsible use of the available balance for purchases.
The revenue from these two fees charged to consumers represents only 15% to 20% of the startup‘s total revenue; the major part comes from the fixed fee paid by the partner stores. Thus, the startup profits from the volume of SMBs that use its solution.
Sezzle’s average ticket in Brazil will be BRL 400, a balance that the consumer can spend at any store that offers the fintech‘s BNPL as a payment method. As for the partner stores, they receive as if they had made a cash purchase, discounted only the platform’s service fee.
Timing and target audience
Villanova explained that more than a payment method, Sezzle wants to be a sales accelerator for SMBs newcomers to digital while engaging a young, heavily digitized consumer audience. “This is a very favorable timing. The pandemic has accelerated the digitization of retail and brought a lot of new retailers online. So, on one side we have this contingent of new digital businesses, and on the other, we have a growing contingent of digital-native consumers, which is even our main audience in other countries.”
But beyond the Gen-Z consumer, Sezzle knows that the Brazilian market has socioeconomic peculiarities that need to be considered. “We want to build a base of partner stores that serves not only the Gen-Z profile. Brazil has many informal workers, with irregular incomes. We want Sezzle to be an option for this consumer to buy, and that is why we will look for a mix of stores and products that meet the demands of this public, such as cooking gas cylinder distributors, for example,” said Teles.