Sezzle — a “buy now, pay later” (BNPL) company based in Minnesota, but listed in Australia — was denied a crucial lending license from California. Rival BNPL company Afterpay’s application was approved by the state.
The company offers U.S. and Canadian consumers modest, interest-free loans, then takes ownership of the contract agreements between merchants and consumers to process payments.
According to a statement by Sezzle on Thursday (Jan. 2), California’s Department of Business Oversight determined that the company’s purchase of these contracts indicated that Sezzle was already “lending without having a license to do so,” and consequently “rejected the company’s request” for the license.
Sezzle’s shares fell considerably on Thursday, taking the company’s worth to approximately $131 million, around 40 percent less than its worth in July 2019 during its IPO.
The company’s troubles are only the most recent of several BNPL firms. Sezzle and other BNPL firms, which give young shoppers easy credit to spend online, have recently grown in use, but their business model has drawn increased scrutiny from regulators, concerned over whether this financial arrangement is essentially a traditional bank loan.
Afterpay, for instance, was recently accused of noncompliance with Australia’s money laundering laws. Australia’s central bank is, therefore, slated to review the BNPL industry this coming year. Afterpay released a statement confirming approval of its own California lending license six weeks ago, upping its shares by 4.6 percent.
“Afterpay is much more diversified in multiple regions, and I’d assume, because of that, [it is] perceived as a lower-risk play,” said Mathan Somasundaram, market portfolio strategist at Blue Ocean Equities, according to reports. “Whereas, Sezzle is only in the U.S., and at a very early stage, so the risk will be a lot higher for them if they don’t start on the right foot.”
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More