Ructions continue to roll across the Australian payment sector after local buy now, pay later firm Zip Co confirmed it was mulling a takeover of a US-focused rival.
Zip Co – a local rival to Block-owned Afterpay – on Tuesday confirmed it was in early talks to acquire US-headquartered firm Sezzle, having been rumoured to be holding talks over a number of months.
Sezzle was founded in 2016 and operates in the biggest retail battleground in the world – the US – which is increasingly becoming a focus for Australian fintechs.
No deal with Sezzle has been decided yet, but a Zip purchase would track with current consolidation trends in the payment sector, as companies seek out ways to remain viable.
This month Afterpay sealed its $39 billion takeover by Jack Dorsey’s Block Inc – formerly known as Square – while Latitude Financial has tabled a $330 million takeover offer for consumer finance group Humm.
The $1.9 billion Zip Co said the talks with Sezzle were an example of its willingness to “pursue options that are in the best interests of shareholders”.
“The Zip Board remains committed to ensuring any transaction delivers value to shareholders and will always be disciplined in its assessment of potential opportunities,” Zip Co said in response to merger talk.
Players in the hyper-competitive payments industry – which in Australia include Splitit, Klarna, Openpay, humm, Afterpay, Zip and Sezzle – have copped a battering in recent months amid regulatory uncertainty and a rolling growth sector selloff that has driven share prices far below the heights of early 2021.
Following Tuesday’s news, Zip Co shares initially jumped before falling by as much as 3.4 per cent on the ASX to $3.17, the company’s lowest price since early 2020.
Zip has fallen by 60 per cent in value over the past six months, having at one point being worth more than $7 billion.
Sezzle shares, meanwhile, surged on the buyout chatter, leaping nearly 19 per cent in value to $2.64. That’s still well down on the peak valuation of $11.99 nearly a year ago.
The buy now, pay later space was perhaps the most hyped area of the stockmarket last February as instalment payment models gained mainstream acceptance and hefty backers, with the system quickly becoming embedded in Australia’s retail landscape.
PayPal, Citi and Commonwealth Bank were among the giants attracted to the notion of offering short-term, interest-free loans to consumers in search of more flexible methods to enjoy their purchases sooner.
However, it has been rough sailing for the sector over the past year, as the prospect of runaway inflation – and the interest rate hikes needed to keep it in check – forces investors away from more speculative stocks.
The regulatory discussion around buy now pay later has also caused confusion, although many in the space say they welcome regulation as a means of legitimising it.
