From the helm: Splitit’s (ASX:SPT) CEO, Brad Paterson

Bell Direct
July 21, 2020

In this instalment of our From the helm series, Bell Direct’s Jessica Amir speaks to Splitit’s (ASX:SPT) CEO, Brad Paterson.

After being an executive at Visa and Paypal, Brad now heads up US-based, buy now, pay later company, Splitit (ASX:SPT). Splitit has seen record sales growth in North America and Europe, and its shares have gained over 110% on the ASX so far in 2020. Splitit partners with credit card providers, including Mastercard, allowing consumers to use their credit limit to pay for items “in bite sized chunks”.

In this video the CEO of Splitit discusses:

  • (0:43) How Splitit works
  • (1:43) What to expect for the buy now, pay later industry in 10 years
  • (2:51) Operational results: Quarterly and year-on-year sales surge due to a COVID-19 induced change in consumer buying behaviour
  • (4:26) What to expect after the Government handouts come to an end
  • (7:03) The most popular items bought using Splitit
  • (8:01) Regulation to shake the industry
  • (8:59) Why you should add SPT to your portfolio
Read Transcript

Jess: Thanks for tuning in.

 

I’m Jessica Amir a market analyst with Bell Direct.

 

Well tech stocks are trading at all-time highs and a buy now pay later company Splitit (ASX:SPT) appears to be joining the party after rising over 110% so far this year as at the 17th of July.

 

So to tell us about the business, the Managing Director and CEO Brad Patterson is joining us now from the U.S.. Brad, thanks so much for your time.

 

Brad: Thanks for having us Jessica, great to be here.

 

Jess: So just tell us about Splitit and what sets you apart from other buy now pay later providers.

 

Brad: Sure, i’ll try and keep it succinct then we can build on that.

 

But we are quite unique in as much that we enable installment payments for buy now pay later on a credit card.

 

So you have a number of players in the market which were enabling buy now pay later installments through consumer financing, new financing, new credit to consumers that don’t have a credit card, don’t want to use a credit card.

 

We’re in the other pool because we’re one of the only ones doing this, if not the only one that allows people to use their credit limit.

 

We blocked that credit limit and allow them to pay that in installments.

 

So if I buy a $1000 bicycle today, rather than paying $1000 in 30 days from now on my credit card, we’ll hold the $1000, we’ll only charge you $100 on your credit card for the next ten installments.

 

So using the credit you have in installments we enable any credit card, over two billion around the world, Visa and MasterCard are the primary ones.

 

Open to anybody who has a credit card can use Splitit.

 

Jess: Some might think the buy now pay later segment is pretty overcrowded. Fast forward to 10 years, where will you sit?

 

Brad: It’s a great question, I’ve been very foolish before with my predictions, so I’m prepared to be a fool on this one.

 

But I will tell you what, what we see is happening is there will be another version.

 

There will be another model, there will be another way that consumers will demand. What we’ve continually seen is a drive towards consumer choice and personalization and flexibility.

 

I think we’re all doing that well in very different ways.

 

I don’t believe that credit cards are going away.

 

I’ve heard the rhetoric, I can see a trend in Australia, outside of Australia that’s not the case.

 

If anything there is slightness in growth in some areas.

 

Well if consumers will use, will get credit where they can get credit.

 

They will then look for the greatest utility and the greatest user experience.

 

I have to say in this space it’s incredibly busy, there’s what 10 to 12 different players I can just think of, there’s probably another 10 that are emerging and playing into countries that we don’t focus on.

 

But let’s just say there’s 10 to 12 players in the market today.

 

We saw this at PayPal in the early days in the digital wallet space, now there’s 1 or 2 and I expect we’ll probably see a fair bit of consolidation, the different form factors, different credit facilities.

 

Jess: You mentioned growth and indeed we saw quarterly sales growth for you up 260% year-on-year in fact.

 

Tell us what’s behind these numbers.

 

Brad: I would like to say COVID-19 is a catalyst.

 

The pandemic has been a catalyst for people driven to e-commerce and to look for more affordable ways, look for ways for their cash to be used more effectively.

 

Reality is we’ve been fighting this for nine months.

 

We’ve signaled this actually in Q4 and then also at Q1 results because in Q2 is when it will take off for us.

 

Now second, we’re a calendar year, so our quarter started in April and this is exactly when we saw it.

 

We refreshed our strategy to be different.

 

We are intentionally different.

 

We’re deliberate and not doing what other folks are doing.

 

We realised that product market fit is those with credit cards, those with credit that wanted to use that more effectively and we saw the customers that loved Splitit, that loved what we were doing was spending $800/$900 on the transaction that wanted to bring that down to bite-sized chunks of $100 a month.

 

So we tailored our business, we tailored our sales and marketing focus, refreshed our brand and have enhanced our product.

 

All of that is culminating now, you’re just starting to see the green shoots of that strategy taking off.

 

So we believe with the very early stages of execution on the strategy, COVID-19 has meant more shoppers online, has also meant more shoppers looking for instalment payments which has then being a catalyst for our growth hisheriff check out.

 

But our strategy has also opened us up to very large merchants, a lot more consumers so that’s driving all aspects of the business.

 

So we see a rising tide is raising all boats and our strategy has put us in a very good place

to benefit from that.

 

Jess: And you speak about rising tides, we’ve also seen by now pay later market valuations surge.

 

Will this continue given Government handouts are expected  to come to an end soon?

 

Brad: There’s a number of different factors there, I’ll start on the valuation.

 

It’s really from a payment perspective my experience in payments over 20 years in this industry is if you do this well just compounds when you’re buying value 10 to 15 years from now.

 

I remember PayPal was acquired for $1.6 billion by eBay and everybody thought it was incredibly expensive.

 

Ben Horowitz said to Meg Whitman this is going to be the deal of the decade.

 

They now have a worth $200 billion and that was after a split.

 

So I think there is, you’re buying into the long-term players of providing great value, so I actually don’t think there is.

 

It may be value versus revenue in a traditional metrics, but if you’re looking at longer term growth paths and success of that business then you’d argue that it’s in a great spot in terms of the industry.

 

There’s too many people in the industry, I do think we’ll see consolidation there, so it’s about picking where you think folks are gonna win in the areas that they serve.

 

In terms of the stimulus,  JobSeeker is ending, in the U.S. here they’re just talking today about a $1.5 trillion package to extend that through to the end of the year, putting $600 in people’s paychecks every every two weeks, so I think different parts of the world this will this will continue, other part of the world it will turn off, it remains to be seen.

 

We’re not seeing an impact from that, we’re serving typically we’re seeing our customers have two credit cards that have the open to buy, they’re still buying bicycles, they’re still buying mattresses, they’re still buying appliances, they’re still buying things for home and themselves.

 

We haven’t seen that drop-off when our merchants are, but we may be targeting a slightly different area then maybe more general spend for those who are impacted.

 

I think travelers and if you’re exposed to those areas there’s a lot of, there’s going to be a long road back.

 

I will say we’re very small.

 

We’ve got the opportunity to weather this storm and still grow at phenomenal rates because there’s a huge runway ahead of us.

 

We’re not as focused on the macro but we keep a very close eye on that, but from our growth rate it shouldn’t be impacted as much if we execute well.

 

Jess: And just quickly, what’s your growth split between the U.S. and Australia?

 

Brad: We don’t split it out specifically, but we have said majority of our business is in the U.S..

 

So North America and remember now we’ve just opened an office in London, we’ve just booked a team in London and we’re seeing tremendous growth out of Europe from our London office as well.

 

Australia related to market, we have a good business there but our main growth and most of our business comes from North America and from Europe, Western Europe.

 

Jess: And Brad what would you say are the most popular items that people are using Splitit for?

 

Brad: Similar to what I was saying actually, things for around your home and things for your health and fitness.

 

We’re seeing fitness equipment, bicycles has really taken off, some of our merchants are selling bicycles and some of the biggest brands in the world in that space continue running out of stock and they’ll bring it on and in three days it’s gone again.

 

So phenomenal for outdoor investing in yourself, also investing in being connected around the home.

 

People realise that they’re staying they’re going to be home for a long time, especially here in the U.S., so they’re really investing in the home office, a lot of renovation type work and home base work taking off.

 

Actually seeing real estate market in the suburbs increase dramatically and in the city’s decline dramatically as well.

 

So there’s a lot of investment of people’s homes happening, a lot of our merchants are in that space too.

 

Luxury retail is starting to come back, we’re seeing jewellery and higher end retail merchants that we have are starting to see a nice bounce back to sales too, so people saying this spend on themselves a bit more.

 

Jess: Brad what about regulatory reviews and tighter standards, do you think regulation will affect the industry?

 

Brad: I think it’s inevitable, well we know it’s inevitable.

 

There’s a great movement afoot to self-regulate, I suspect it won’t be enough.

 

We’ve been advocates that everybody should be on a level playing field, so issuing finance into a consumer you should be regulated in the same way across the board, shouldn’t matter what industry you’re in, whether you’re new or not.

 

I think there needs to be some barriers basically to the size as to your ability to offer different things.

 

If you look at a payment system or all payment systems, so surcharging I can’t see how will not be enforced to be allowed.

 

We allow surcharging now, we’ve followed the payment rules of any market that we operate in and we expect that to become in Australia payment systems rules will be applied and I expect on the financing side anyone finance in consumer will have to follow the code of conduct with consumer credit and similar type of regulations in that country or in those markets.

 

Jess: And just lastly Brad, in ten words or less why should investors consider adding Splitit (ASX:SPT) to their portfolio?

 

Brad: We’re just getting started and we’re very different.

 

Jess: Managing Director and CEO of Splitit Brad Patterson, thank you so much, great to meet you.

 

Brad: Great to be here, thank you for having us on, talk to you next time.

 

Jess: And thank you for watching. For more information about Splitit, head to Bell Direct’s website.

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