Payments company Splitit has emerged as one of nabtrade’s most traded stocks recently. Chairman Spiro Pappas joins us to discuss how its solution works, Splitit’s growth strategy and risks for investors to consider.
VP - Welcome. My name is Vishal Teckchandani. Today, I'm speaking to Spiro Pappas, the chairman of Splitit, the latest payments company to hit the ASX. Spiro is a former CEO of NAB Asia and he's also the chairman of Atlas Iron and technology company, Cognian Technologies. Spiro, it's so great to have you here. How are you?
SP - Very well, thanks, Vishal. Thank you for the invitation.
VP - No problems. Spiro, let's talk about what a flying start Splitit has had on the ASX.
So, a bit of an overview for our investors. You listed on the 29 January, so, last Tuesday. You raised $12 million during the IPO. And your stock price has gone up fivefold since the issue of 20 cents. And interestingly, from a customer behaviour perspective, it's our active investors buying into the stock, so short-term traders looking for short-term gains. They're using technical analysis and whatnot. And we also have wealth builders, so people investing in your company for the long term, buy and hold. Now, I'll come back to that in a moment, but I think our audience is familiar with the concept of buy now, pay later' companies, so can you explain what the difference is between Splitit and its competitors like Afterpay and Zip Money.
SP - So, Vishal, in a nutshell, we are basically an instalment payment solution that utilises the rails of Visa, Mastercard, China UnionPay. So, basically, we are utilising pre-approved credit limits from the banks who issue the credit cards, and all we are doing is providing a technology solution to facilitate instalment payments, or split payments, utilising your credit card.
VP - OK. So, how many how many split payments can a consumer do?
SP - Up to 36 months.
VP - Up to 36 months.
SP - And that's really the choice of the merchant. So, we work with the merchant. The merchant tells us what options they want to offer to their clients. They might say, "We want to offer six- and 12-month options, or two-year option." And our solution to your earlier point, it's a monthly instalment payment plan, as well. Some of the other solutions that we're familiar with here in Australia are fortnightly, and they go out for literally... It's four payments on a fortnightly cycle. Ours go for a lot longer.
VP - OK, and, so, the benefit of this is really helping consumers manage their cash flow.
SP - Yes.
VP - So, let's talk about some of the other big benefits that the Splitit solution offers. So, there's no credit approvals and there's zero fees from a consumer perspective. So, how are you making your money and how are you managing the risk, in terms of people paying back their $15,000 wedding ring debts or their ski trips?
SP - Yeah, so, there's two questions there. So, Vishal, I mean, to your point around the benefits, for the consumer, it's frictionless. Basically, because we're utilising their existing credit card, at that magic moment at the point of sale, whether it's online or offline, it's instantaneous. It's already been a pre-approved credit limit. So, for the consumer, it's frictionless, and, secondly, there is no late fee charged by us and no interest charged by us, because they're using their credit card and all we're doing is facilitating them to use their credit card and smooth the payments over a longer period, so that's point number one. From how we make our money perspective, if you think about it, as I mentioned earlier, because we're utilising pre-approved credit limits from the issuing banks of the credit card, we're not taking the credit risk, ultimately. It's the issuing bank who's taking the credit risk. What we're doing is facilitating, we're providing the enabling technology through Visa and Mastercard's schemes, across their schemes, I should say, for merchants to drive more sales at larger average order sizes with their customers at that magic point of sale moment.
The people who pay us are the merchants.
VP - Right.
SP - They pay us a service fee. It's 1.5%, typically, plus US dollars, USD$1.50 per instalment transaction. And it averages out. It obviously depends on the number of instalments, but, on the total portfolio basis, it averages out at around 2% for the merchant, the cost. Now, if the merchant wants to be paid upfront by us, there's obviously a funding cost of that to us, so we pass on that funding cost as well, so it costs them a little bit more, but, most importantly, it's very competitive, in fact, cheaper than the other solutions that merchants are currently using.
VP - OK, wow, that's very interesting. I'm going to put a slide up for our viewers just showing the growth your company's had. Across all metrics, it looks exponential.
SP - Yeah.
VP - How sustainable is it?
SP - That's a great question and, obviously, from my perspective, for our viewers, I spent 28 years in banking both here and abroad, and I invested in the company pre-IPO, and that's how I got familiar with the company, and I scanned the market and did very thorough due diligence on this company, and I think it's very sustainable.
And my rationale for that is, obviously, as we touched on, for the consumer, it's frictionless, so it's convenient. It's simple and convenient in the hands of the consumer. They just use their credit card. They opt for how many instalments they want, and they're off and running. For the merchant - seamless integration. So again, very, very convenient for them. And, if you're a merchant who wants to develop your business globally, or if you're a global brand, we're already in 27 countries but we can support them in any countries that Visa and Mastercard and China UnionPay are currently in, so a couple of hundred countries. So, in fact, we're the only instalment payment solution that is truly global. And so, it ticks the boxes for the consumer, it ticks the boxes for the merchant, and, most importantly, because we're an enabling technology, we don't lend money and we're never the merchant of record, and, because of the unique nature of the whole system, with pre-approved credit limits from the banks, this is globally scalable without us needing to go out and get credit, like, regulatory approvals in every country we have to go into. So, the barriers to entry for us, in that sense, don't exist.
VP - Sure. And before we started filming, Spiro, do you want to outline what you mentioned to me in terms of just the market opportunity in the US and the management team you've got.
SP - Yes. So, existing credit limits, outstanding credit limits in the US market for consumers on their credit cards is USD$3 trillion.
VP - Yeah, wow.
SP - So, that is our addressable market, and the sweet Spot for us are what we call prime and super-prime borrowers. That's people who basically are regular users of their credit card but always pay their payments before the month end. What we give them, the power of the solution is, if they want to do a lumpier payment, and they're hesitating because they don't want to incur... basically, their monthly budgeting doesn't allow them to do it on their credit card without going beyond the month end period, and therefore incur, you know, expensive interest rate costs, we now provide them with a solution where they can smooth the instalment payments for that. So, in that sense, to your point, it's a very large addressable market. So, we talked about the consumer. We talked about the merchants. We talked about the regulators. We talked about the size of the addressable market, just the US alone. And the other aspect that I looked at, when I was looking to invest in the company, was the management. Very, very experienced management. The two co-founders are serious people with deep experience of credit card systems.
VP - So, Spiro, everything you've outlined seems fantastic. The market opportunity's huge. You've got the management and technical experience within there as well. Let's talk about the risks. So, I mentioned at the start that some of our investors here are wealth builders, they're investing for the long term. No doubt, some of the people seeing the performance of the stock, perhaps are thinking about it. How would you talk about, how would you explain some of the risks of investing with Splitit
SP - Yes. Look, I touched on this a little bit earlier because I obviously went through the process late last year when I invested in the company pre-IPO, and the risks, firstly, the credit risk is not ours. The credit risk is actually ultimately on the issuing banks who issue the credit cards cause they're the people that have provided the credit limits. All we are is providing, facilitating, providing them with the technology and the whole Visa and Mastercard system to make instalment payments using that credit card. That's our value add. So, we don't have that credit risk, and that's actually a very important point, because, if you think about it, one of the key questions you need to ask yourself, and certainly what I asked myself when I was looking to invest, is how scalable is the business?
SP - Because we don't have the credit risk, and there are a lot of available credit limits, we don't have all of the processing risk of chasing up people who are making late payments. So, we can be very, very focused on scaling the business at the front end with customers and via our merchant partner customers.
VP - Sure, sure, those are the benefits. But what is the risk that will stop you from earning money or a transaction going to liquid?
SP - Yeah, so, we don't have the credit risk. We're basically, from a regulatory standpoint, if you're thinking about regulatory risk, because we're an enabling technology, we're not lending money, so that's not a risk. The real risk is how quickly we can get out to merchants and execute on that deployment. Obviously, like any technology company, making sure that the technology works and scales. In essence, that's the risk.
VP - OK. Spiro, I just really want to thank you for your time and for sharing all these valuable insights with our investors on nabtrade. Really appreciate it.
SP - Vishal, it's been an absolute pleasure. Always a pleasure to come and see my friends at NAB.
VP - No worries, thank you so much. I hope you found this video informative. Now, please remember, what we talked about today isn't investment advice. If you're thinking about transacting in shares of Splitit, please do your research and consider seeking financial advice. My name's Vishal Teckchandaniand I'll see you next time.