Interview with Payright (ASX:PYR) CEO, Myles Redward
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[00:00:00] Ben: Give us the elevator pitch, Myles.
[00:00:02] Myles: We are an emerging, albeit increasingly established, point of sale consumer lender, specialising in transactions over a thousand dollars. So financing transactions, bigger ticket transactions at the point of sale across sectors that are significantly under serviced by other players in this space.
[00:00:20] I think we've all understood the concept of Buy Now, Pay Later as a category and as a concept. We've very much seen an explosion in demand for pay over time, our point of sale offerings in recent years, a number of new players entering the space, but we're very much the first to come to market that specialise in transactions over a thousand dollars. And that's that point of difference.
[00:00:40] Ben: So bottom end of the range of thousand dollars, what do you lend up to, what's the top limit?
[00:00:45] Myles: We extend credit right up to $20,000 in certain circumstances and up to 60 months. And again, you mentioned the bottom end of the range, that sub $1,000 end of the market. I think most people probably know and understand the concept of Buy Now, Pay Later, perhaps through the eyes of the Afterpays of this world; that "pay-in-four", that six week lend and we can do that.
[00:01:04] We do that, but again we do extend credit right up to $20,000 and up to 60 months. And what that then subsequently lends itself to is a very different merchant mix again, to what you might see in that micro ticket end of the market, which is historically very retail focused.
[00:01:20] Retail's important vertical for us, represents about 35% of the book and growing rapidly, but again, being high price point, we've got merchants that sit well outside of that core retail vertical in other areas like home improvements (a rapidly growing vertical for us), education photography, aftermarket automotive, and health and beauty as well. So you start to get a sense of the quite distinctly different offering, and operating in a sector and end of the market that is significantly under serviced by other players within the space.
[00:01:48] Ben: So make it real for me, give me the most common item financed and give me the most eyebrow- raising item that you've financed that comes to mind.
[00:01:59] Myles: Certainly one of the most growing verticals or purchase types, I mentioned home improvement earlier. That vertical is up 200% year-on-year, we're seeing really good demand for pay over time. Perhaps the most common purchase within that vertical is probably solar. We do a lot of solar, so financing solar panels on the roof, and you can imagine that, the demand or the benefit and the sell really to someone looking to put solar panels on their roof. Not only can you significantly reduce your energy consumption, but the fortnightly or monthly repayments that you're making to the finance provider, typically are less than what you'd be paying in terms of your energy bill. So that's a rapidly growing area for us.
[00:02:36] The more unusual merchant types and purchases that we would typically finance. I wouldn't describe this necessarily as unusual, but certainly under serviced by other areas is education. That's again, a rapidly growing sector and a vertical for us seeing really good demand for point of sale, pay over time finance solutions out of that vertical.
[00:02:55] Ben: In the market, people look at thematics and the Buy Now, Pay Later thematic has been something that has been very prevalent over the last few years. It sounds like the typical by now pay later, doesn't really suit you in terms of a description. As the CEO of a listed business, how have you found being "lumped in", for want of a better term, with that group? How do you feel that you differentiate
[00:03:19] Myles: I think that's a really valid point you make. From the way that I've described the nature of our business, you start to get a sense of being a very distinctly different offering. Again, I used Afterpay as an example, that "pay-in-four" micro-ticket end of the market that typically sees an average transaction size of around $130 - $150. For us, our average transaction size is closer to $4,000. So again, distinctly different offering, and quite rightly, I think, research papers and analysts will liken much more so to a personal loan-type offering in terms of the unit and product economics.
[00:03:50] We feel that we sit somewhere in the middle between a Plenti or a MoneyMe, or a Wisr in terms of that personal loan offering and that micro-ticket end, the BNPL market in the sense that our product is sold through a merchant network. And that's an important distinction of course.
[00:04:03] I think that's probably why we're seeing the explosion in demand. Certainly as a category and as a concept, people make that purchase through what they believe to be a trusted merchant. And with finance provided, through that merchant, affords that same level of confidence and trust in the finance provider.
[00:04:18] So again, we sit somewhere in the middle, we do defer and recognize revenue over the life of the loan, and I think that's a really important distinction between us and the micro ticket end of the market.
[00:04:28] Our numbers are obviously public. We passed 30 June today, we are looking to complete our full year numbers. But again, really good growth for this financial year. Our FY21 full year revenue was $12.2 million. In the context of the deferred revenue recognition profile as at 31 March, we had about 17 million sitting there in revenue from lending activity that has already taken place, albeit not yet recognized. So again, that's a very distinctly different offering, a very distinctly different unit economics. And again, much more aligned to that of a personal loan provider.
[00:05:00] So to your point, the challenge for us is how do we continue to educate the market on that point of difference? And, we've, I think perhaps unfairly been lumped into what is being seen, I think, by the market as an increasingly congested "pay-in-four" point of sale solution. We've obviously seen a number of new players pile into the space, even the big global brands around the world. We've seen Apple fairly recently announce an introduction to Buy Now, Pay Later, PayPal also, all the big four banks you've got ComBank with their step pay product, nAB are fairly recently announced their intention to, to launch a Buy Now, Pay Later solution.
[00:05:36] In all cases, it's that "pay-in-four" end of the market. The challenge for us is how do we continue to educate the market on that point of difference. And that was a very distinctly different offering.
[00:05:47] Ben: One of the questions that a lot of your shareholders ask is around the unit economics. When we think about those larger brands that have really driven the media news cycle of it. As you say, much lower price points per transaction, obviously they're making a lot less per transaction, which means they need a lot more dollars invested to break even.
[00:06:09] Tell me, if you can, a little bit about your unit economics. So from your fee point of view, how do you rate versus alternative solutions? And also, what kind of number do you need to break even? Are you talking like billions of dollars? Do you need $10 billion to break even in terms of loans or is it a lot less than that? Where should people get comfort over where you're heading?
[00:06:32] Myles: We haven't necessarily gone out and published any forward looking guidance, so I'll be a little bit measured, but we did give an indication off the back of a recent announcement. Having secured a bank warehouse facility with senior lender Goldman Sachs, which is a $125 million facility, which is a hugely significant milestone, not just in the funding journey of the company, but the growth of the company more broadly.
[00:06:52] As a lender, probably the biggest line item on our P&L is of course the cost of funds, so to transition from what previously was a loan note program to a significantly reduced cost of funds through this bank warehouse facility will fast track us on that path to profitability. Obviously we're seeing more and more players within the space looking to focus much more so on that path to profitability. Wasn't that long ago it was all about growth, and there's still plenty of growth still left in this sector, the results that all the players within this space continue to put out every quarter every month are showing really good, strong growth. But that shift certainly applies to us, significantly, has moved slightly away from this " grow it all costs", much more towards being able to demonstrate that we're on a very clear path to profitability and we are.
[00:07:36] In our recent announcement, we did give some guidance. We indicated that a book size of around $200 million is where we think we would expect to need to be to reach that break even point. For context, we're around a hundred million now, that receivable is growing at about 60% year on year. So you can put an approximation in terms of timeframe on when we expect to get there.
[00:07:57] The point you also make in terms of our fee structure and what that means in terms of the unit economics, it's a more yieldy product. For context, the revenue as a percentage of GMV, which is Gross Merchandise Value, the total dollar value of all credit extended to the end customer. For the micro ticket end of the market averages around 2-3%, for us, it's closer to 14-15%. About four or five times what the micro ticket - that sub $1,000 end of the market, are seeing.
[00:08:26] That's a product of the deferred nature of our revenue recognition that I've briefly described earlier, along with the much less congestive nature of the end of the market in which we specialise, which is of course that big ticket.
[00:08:38] And just quickly, the average length of loan. How long is that?
[00:08:42] About 24 months, the weighted average term of the receivable is about 24 months. The simple average is closer to 12 months, but given that typically the larger purchases are extended out over a longer period, the weighted average term of the receivable is about 24 months.
[00:08:56] Ben: You've said a few times about your merchant signups and that they become the salespeople. So you've externalised your sales force and I assume incentivized them as well. Tell us a bit about your merchant sign up rate. Is the mix where you want it to be, are you going after a lot more? What's happening?
[00:09:14] Myles: We're very pleased with the distribution of merchants across some of those sectors and verticals that I'd described earlier, each of which offer something a little bit different. We're seeing really good growth, as I described earlier, out of the home improvement vertical. Likewise, it's a very good credit because typically they're all homeowners. So the arrears and the loss position sitting within that vertical is really good..
[00:09:33] There are other verticals that are lower transaction size. So perhaps they're more yieldy, but might be slightly higher in terms of the risk profile associated with the end custom. So for us, it's a bit of a balancing act and we're very measured and considered in how we direct and focus the BD effort in terms of bringing onboard those new merchants to balance all those key measures of performance. Fast approaching around 4,000 merchants on the books across both Australia and New Zealand, and continuing to grow rapidly.
[00:10:02] That's the beauty of this product, in many ways it's a case of signing up a merchant, and they put a temp card on the desk there saying," payment plans available, ask in store." Perhaps even two years ago, a Buy Now, Pay Later or a point of sale solution was seen as a competitive advantage.
[00:10:17] Where we are today, not having it puts a retailer at a significant competitive disadvantage. So we're very confident there is significant growth and further penetration to come. It's very much in its infancy, and we're well positioned to really capitalise on that growth.
[00:10:32] Ben: So I can see the value prop very clearly and understand why it's such a competitive advantage. When we are talking about these sorts of loan terms, so 12 to 24 months and obviously further. For large amounts in an environment with an increasing interest rate rates have just risen, they're likely to rise again, how does that impact you? How do you manage the risk around that?
[00:10:56] Myles: Yeah, it's a good question, and obviously we are in a rising interest rate environment. I think as recently as yesterday, we saw another 50 point increase to the base rate, and I described earlier the yield that sits within the book.
[00:11:06] We're in a very fortunate position where we are quite yieldy. There is a pretty good buffer within our existing book to absorb some of those rate increases. Now there are things that we can do, and we're looking to really expand on further things like, for example, hedging some of those interest rate rises.
[00:11:22] Additionally, and we're seeing it now broadly across the sector, and of course we know that the banks do it. They take a commercial position really on, to what extent, if at all, they pass the rises onto the customer, and the same applies with us and our sector. So we obviously do have the ability to pass some of those rate rises onto our merchants in the form of an increase in those merchant fees.
[00:11:44] But again, for us, it becomes a commercial decision. We know that some of the other players within the space are doing that. Perhaps not surprisingly it's received to varying degrees by some of those merchants. So again, that's the commercial position, but we do have that up our sleeve and in our back pocket along with, of course, with the ability to hedge those rates and protect that margin within the book.
[00:12:03] Ben: One of the questions I like to ask is what questions do you wish you were asked more often? What's something that you think is really relevant that only a few people maybe ask? What area do you think is overlooked in the business and think that you are quite excited about. ,
[00:12:18] Myles: It's always good when people and investors really probe and try to get a better understanding and appreciation of our point of difference in the market. I think, obviously we've spoken about that to some extent. You can see that's something that we're continuing to try and emphasise and educate the market on, and the conversation we've had now, you can really get a sense of what is a significantly different offering in the market, in a much less congested end of the market .
[00:12:41] I always like it when we get asked that question and there's a real attempt to really understand that point of difference, particularly around the unit economics. I described earlier that significant and rapidly growing revenue balance that's sitting on that virtual balance sheet of sorts and what that means, hypothetically, if we didn't write another cent in volume, we'd still have, as at 31 March, circa-$17 million in revenue to be recognised over the coming years. That's in the context of a $12.2 million, full year revenue number last year. A big number in relative terms.
[00:13:12] I also like it when people try to appreciate and understand the value, and this does talk to the point of difference and the share price, of course, and it's not just us. The sector more broadly is down significantly from highs, we IPO'd 18 months ago, a long way above where we are today. I think certainly in our case, we're very much getting bucketed in that micro ticket end of the market, which is becoming increasingly congested. We spoke earlier about some of those big global brands that are looking to put in place a BNPL solution. But again, in all cases, it's distinctly different to what we do. So I always like it when we get asked those questions and if we don't then, try and steer a little bit of the response to help people understand those key distinctions.
[00:13:51] Ben: A quick question, just on, on business size and team.
[00:13:55] Myles: We've got about somewhere between 70 and 80 people at the moment. We're a FinTech business of course, so we're fairly heavy on the tech side. As you would probably appreciate and understand, we're constantly looking to evolve and iterate and improve our product offering in markets. So look to enhance the existing offering, but also look to continue to evolve the nature of the business and add additional products and solutions in the market, all of which do require a fair bit of hands-on development and tech. A good weighting of the staff at the moment are in that tech team, but all the areas you would typically expect, obviously we're in an increasingly regulated space, so we've got a growing legal and compliance team.
[00:14:34] Coming back to your earlier question about how we explain the point of difference and what we'd like people to ask. We take a very responsible approach to lending, I think that's also reflected in our underwriting algorithm and our decisioning rules. We do credit check all our applicants, we consider a range of affordability type measures: serviceability, capacity to pay, we scrape bank statement data where appropriate to do so, all of which translate to a significantly lower than market arrears position and an actual loss experience. We put a lot of emphasis on that and the weighting and distribution of staff across the business, in that legal and compliance, and finance team, are also reflective of that.
[00:15:11] We recognize there's a lot of growth to come in this sector. So we also have a growing sales and marketing team. We've got good weighting of BDs and account managers that look to obviously continue to grow and bring onboard those merchants. Nice
[00:15:24] Ben: The last question I have is typically, always the same. You've been here for seven years now, seven and a half years, something like that. What keeps you going? Why are you still here? What are you driving for? Tell me more about your motivation.
[00:15:38] Myles: Seven years is it? Gee, that feels like a very long time, doesn't it? I think we wrote our first deal in 2016, scale up mode in the past three, and of course having IPO'd in the back end of 2020. That's 18 months, which equally feels like a very long time. We feel like we're just getting started here. I've mentioned a few times those verticals in which we play that are underserviced, there is not just demand for, but awareness of the ability to spread the cost of a purchase really across any merchant vertical, there's so much growth to be had here. That's what really keeps me going; excitement and the enthusiasm of just where we can take this.
[00:16:11] We have a vision to be the best choice to finance life's important purchases. We feel like we've gone some way to achieving and delivering that already. Every quarter continues to outpace the previous, we're well ahead of where we thought we'd be, but again, significant growth to come. So really excited about what today brings this week, this month, and beyond.
[00:16:31] Ben: Thanks Myles. Thanks for coming on and having a chat. If you are an existing shareholder, I'm sure you can reach out to Myles directly. If you're a new shareholder, why not as well?
[00:16:41] Every listed company likes new people coming on board, check it out. Payright, PYR is the ASX code. And thanks Myles, we'll be seeing you soon.
[00:16:50] Myles: Thanks, Ben. Good to talk
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