May 24 • 22M

BIG5D Podcast Episode 29: 'Buy Now, Pay Later' with Mobicred CEO Jason Sive

"If you look at the unit economics, it is difficult to say that this thing works."

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This episode of the BIG5D Podcast is brought to you by Matchcraft

Jason Sive is lumped in with the buy now, pay later space via his company, Mobicred. But he resists this grouping, noting that what his company really offers is a virtual credit facility. And this bears more similarity to traditional revolving credit than the no interest, no fees “pay in four” structure that most of us associate with buy now, pay later.

Mobicred, which was recently acquired by RCS, offers a virtual credit facility and partners with retailers to offer at the point of sale. The service has been available only online, but Sive noted in the interview that an in-store option is coming. Mobicred has relationships with more than 4,000 retailers.

For all the time we’ve been in touch with Jason, he’s been a pretty sharp BNPL critic. He says the pay-in-four model and its variations are unprofitable, even at scale.

And he says too many players rushing into the space has created a race to the bottom. BNPL platforms are in some instances paying retailers millions to renew deals, Sive said. And even discounting their main revenue stream, which is the lead fees that retailers pay for each BNPL transaction.

BNPL platforms also assume all of the risk. They pay retailers in full for purchases that consumers then pay off over time. So any defaults are borne by the platforms. However, most platforms mitigate the risk by taking one payment upfront, which traditional credit cards don’t do.

It was Jason’s candor about BNPL that led us to invite him to speak on BNPL at the recent BigFive Summit in Cape Town.

We sat down for a 20-minute on-stage interview that offers about as sober a take as you’ll get on the BNPL phenomenon.

You can listen to the interview above, or view the video here.

Here are some highlights from our conversation with Jason.

On the level of competition in BNPL

You can go to pretty much any country right now. And you'll see one or two that got out of the starting gates first, and then five, or six copycats that are trying to play catch up and inevitably will just be consolidated.

On why the ‘pay-in-four’ BNPL model isn’t sustainable

If you look at the products and the way they're designed, they're obviously able to churn their cash really quickly, which is a great benefit. You don't need a ton of money if you're going to grow very quickly because your money comes back quickly.

But the bigger problem is that I think they've created this expectation amongst the retailers that these products are likely here to stay. But they've also created an expectation amongst retailers that they can be served at a rate that's not sustainable. So in the U.S., I know, some of the big guys are actually paying the retailers, like tens and tens of millions of dollars, just to extend the contracts. That's not sustainable.

On why BNPL platforms are in such trouble now

We’ve had a number of these very large BNPL players launch and scale at breakneck speed. And they've also been able to raise a ton of money on the assumption that when they get to real scale, and they've got 10s of millions of customers, it'll be a great model with good returns and shareholder value. And they listed a lot of these businesses.

Twelve months ago, some of these businesses were worth billions of dollars on various stock exchanges. Today, many of them are worth perhaps 10% of what they were.

I think what's happened is that analysts and investors have run out of patience. They're saying, ‘You guys are at scale, and you're still losing money. And two, we kind of don't believe you anymore, because you've been saying this for a long time’. And now, three, interest rates are rising and tech stocks have been hammered. So they have been in a bit of a perfect storm.

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