Sezzle, a rapidly growing Minneapolis fintech startup, says its mission is “financially empowering the next generation.”
Some in that group — Gen Z, or those born after 1995 — may be may reluctant to take on credit after seeing what the Great Recession did to their families, said Charlie Youakim, Sezzle CEO and co-founder.
The ensuing Credit Card Act of 2009 barred those under 21 them from getting a credit card without an adult co-signer who can pay off the new credit line.
When young people finally need to access credit to buy a car or house, say, their credit rating may be poor because they don’t have a credit history, Youakim said.
That’s the problem that Sezzle aims to solve, Youakim said.
Sezzle offers interest-free installment payments to consumers at online stores. With Sezzle, consumers complete an online purchase that they then pay off in four level, interest-free payments over six weeks. Online merchants pay a fee for the service, which is free to consumers.
“We’re like training wheels for credit,” Youakim said in an interview.
For consumers, Sezzle serves as free financing and a budgeting tool, Youakim said. For retailers, it can drive additional sales, greater basket sizes and faster checkouts after a customer registers an account.
Sezzle closed on a $100 million debt funding facility earlier this month, more than tripling the company’s prior $30 million credit facility. The capital enables Sezzle to pay merchant clients in advance of collecting payments from consumers.
“This substantial increase in liquidity provided by our partners will underpin Sezzle’s capacity to grow its offering to consumers and thereby aggressively grow our underlying merchant sales,” Youakim said in a release.
Sezzle had more than 7,500 active merchants and close to 650,000 active customers at the end of September, up from 5,000 merchants and nearly 430,000 customers on June 30. Underlying merchant sales rose 64 percent to nearly $69 million and merchant fees close to 69 percent to $3.6 million in the same June-to-September period. Sezzle has more than 120 employees at its 15,000-square-foot headquarters in the North Loop’s McKesson Building.
Sezzle is profitable on a unit economic basis, Youakim said.
“Once you’re creating a unit economic profit then it’s all about expanding rapidly,” Youakim said. “Corporate profitability is not something we’re really focused on because our focus is on growth. It’s getting it installed as many places as fast as possible.”
Sezzle this month announced opening of a Canadian headquarters in Toronto and the hiring of Patrick Chan as general manager for Canada. Chan, a Toronto native, has worked in senior roles, at Salesforce, PayPal and SAP Qualtrics, according to a statement.
In July, Sezzle raised close to $30 million in an initial public offering on the Australian Securities Exchange in Sydney. Investors there have a better understanding of the company’s “buy now, pay later” model. Sezzle is using the capital to expand sales, marketing and product development.
Sezzle previously raised $1.8 million in seed capital in 2016, $500,000 in a 2017 bridge round and $8.5 million in April 2018, Youakim said.
Sezzle checks customers’ credit data but doesn’t affect their credit ratings when they join, Youakim said. It sets a small initial spending limit. If customers don’t make their payments, Sezzle stops them from making additional purchases until they catch up.
Sezzle is considering ways to help consumers build their credit, Youakim said.
That could mean offering an option to report customers’ Sezzle history to credit bureaus, Youakim said. Partnering with a credit card company is another possibility.
David Burke, co-founder of Great Lakes, an online lifestyle apparel brand based in Minneapolis and founded in 2012, said its average cart of $55 had increased 1.5 times among Sezzle customers since Great Lakes, known for graphic T-shirts that celebrate lake life and warm pullovers for winter, joined Sezzle in July.
The greater cart total more than offsets the 5% fee that goes to Sezzle from Great Lakes, Burke said. That compares to about a fee of about 3 percent on purchases through PayPal or Amazon.
“We’ve only heard good things about it from customers,” Burke said of Sezzle. “It seems like the more financially savvy customers are leveraging it, taking advantage of using other people’s money for free.”
With more than a dozen open positions to fill, Sezzle offers stock options to boost recruiting and talent retention, Youakim said. The advantage is that the equity is liquid.
“We’re trying to double or more every year,” Youakim said. “You’re getting in something that could grow really fast and you have a helping hand in making that happen.”
Q&A with Youakim
Q: What’s the climate for launching a fintech company here?
A: Most [of the conditions] are A’s. The place where we would say it’s probably like a C is investment. There’s just not a lot of funding here in Minneapolis for fintech. But the talent level in Minneapolis is fantastic. The support groups for young companies are amazing. The Minnesota Angel Tax Credit and Angel Loan Fund are fantastic for building a company.