Q2 FY21 Key highlights:
- Very strong uplift in all leading indicators in Q2 FY21, driven by marketing and technology:
- Active Plans of 1,447k up 213% relative to pcp1: largest quarterly growth performance on record
- Active Customers of 461k up 123% relative to pcp, with 77% of new plans generated from Repeat Customers and 49% of Active Customers with more than one plan
- Record Merchant wins lead to Active Merchants of 2,766 up 46% (from +35% in Q1) relative to pcp
- New inflection point in Total Transaction Value (TTV): strongest quarter on record, up 96% in Q2 FY21 vs pcp, to $97.1m. Highest QoQ growth rate on record, up 43% versus Q1
- Openpay UK business gathered further momentum: UK Active Plans up 70% to 506k and UK Active Customers up 45% to 219k over prior quarter
- Openpay for Business – capital light, SaaS based B2B product records initial revenue growth, with step-change growth to be expected in the course of FY21 as Woolworths Group commenced transitioning all trade accounts in September 2020; significant new merchant pipeline for Openpay for Business
- Openpay’s robust funding runway strengthened with the availability of a further tranche of £35m in debt facilities with UK funder, GGC
- Well positioned for further international growth:
- US BNPL product launch imminent; discussions at advanced stages with foundational merchants in core verticals, payments processors and strategic funding partners; US CFO Efrat Yellin joins team and US office established
- UK prepares for next phase of growth via rollout in Automotive and Healthcare specialist verticals, with FCA credit authorisation work in progress
MELBOURNE Australia, 28 January 2021: ‘Buy now. Pay smarter.’ company, Openpay Group Ltd (ASX: OPY) (Openpay or the Company) is pleased to release its quarterly business update for the period ended 31 December 2020 (Q2 FY21) which saw the Company grow at a continued, impressive rate across all its operating and financial key metrics in existing Australian and UK markets, with new quarterly records set for TTV and repeat BNPL product use. Openpay enters calendar year 2021 well positioned for significant international growth, with strong expected demand for its consumer BNPL product in the US market and the near-term launch into new UK BNPL specialist verticals.
Openpay CEO, Michael Eidel commented: “Openpay finished the December quarter positioned strongly to drive the next phase of its international growth strategy. Our rollout in the US – the world’s largest consumer payments market – and diversification across new verticals in the UK, heralds what we expect will be a step change in our growth profile. The US and UK are sizeable addressable markets, and our strategy has prepared us to seize near-term opportunities, enabling growth over and above our current volumes. The US market especially, represents a core opportunity for Openpay as the payments market, for both BNPL and B2B, is less developed than in other geographies. There is significant demand from consumers and merchants for more transparent, fair, flexible, and valuable payment and consumer finance alternatives, like our model.
Our further expansion comes in parallel with continued robust growth in our existing markets. In the December quarter, we achieved record quarterly total transaction volume, whilst new records in Active Merchants and Active Plans illustrate the success of our self-service program and our strategy to build a critical mass of customers in the Retail sector to cross-pollinate into our specialised verticals. Our resilient business model has led to continued repeat use of our longer-term and higher-value plans. This and our focus on differentiated verticals put us in an excellent position to become profitable over time as we create operating leverage through scale.”
Longer-term, higher-value plans drive growth in Active Plans across differentiated verticals
Notably, Active Plans increased 213% vs pcp to 1,447k, representing the largest quarterly growth performance on record, a 37% increase QoQ. The main drivers of growth were the peak season in Retail, with the largest trading day and week in November around Black Friday, and the recovery of growth rates in Openpay’s specialised verticals in bricks and mortar plan originations sites, particularly in Automotive and Health, after the end of sustained lockdowns across Australia.
Openpay’s plan mix continues to be strongly skewed to comparatively longer-term and higher-value plans with three to five-month plans accounting for 73.7% of TTV as at end Q2 FY21. Plans of three months and longer, where competition is less pronounced than in the heavily contested short-term pay-in-4 plan range (where customers often break plans down into 4 equal payments spread across two months or less), were the most prevalent plan structure.
While Retail still accounts for the majority of Active Plans, with 142% plan growth in Q2 FY21 versus pcp, Openpay is experiencing strong growth in its core verticals, with a 40% uplift in Active Plans in Automotive versus pcp and a corresponding 58% increase in Active Plans in Healthcare.
Active customer engagement across key verticals
An Active Customer growth rate of 123% (vs pcp) was achieved at an aggregate level across all merchant verticals, and Openpay finished the quarter with 461k Active Customers.
Strong customer engagement and awareness led to continued repeat usage of Openpay plans. Whilst the share of repeat customers remained stable at a high 77% due to the significant increase of new customers in Q2, close to every second customer had multiple concurrent plans with Openpay at the end of the quarter. 32% of Active Customers finished the quarter with an Active Plan at more than one Merchant, up 88% on the pcp level, while there was a total of 3.1 Active Plans per Active Customer, up 94% on pcp.
Strong Merchant growth in November leads to a record month for new agreements
Overall, Active Merchants grew 46% versus pcp to 2,766 as at end Q2 FY21. This strong increase in Active Merchants is due to the successful launch of Openpay’s automated self-service program which significantly shortens and simplifies the sign-up and onboarding, particularly of small- and mid-sized merchants, complementing the strong sales focus on enterprise merchants and aggregators.
November was also a record month for new Merchant agreements such as Kogan and its brands Dick Smith and Matt Blatt, as well as Intersport, Tarocash, Rockwear, Y.D, St Ali and Barbeques Galore. Other notable Retail launches in Australia during Q2 included Kookai, Glue Store, Sportsmans Warehouse, Lego, Ginger and Smart, Hipkids and Sleeping Duck.
In Automotive, Openpay launched with Northstar Autogroup and integrated with Co Star Automotive & Tyre Software, the leading POS provider in the tyre market. Agreements were signed with Bunbury Motor Group dealerships as well as online parts retailers including Superior Engineering, Goroo Car Mats, Canyon Off-road, Wolf 4×4 and Express Tools Direct.
Notably in the Healthcare vertical, following an initial 9-month pilot period, Openpay and Hearing Australia executed a national contract that saw Openpay’s BNPL product available at all of Hearing Australia’s permanent locations from December 2020. Petstock Vet was welcomed as a Merchant partner and referral partnerships were signed with The Invisible Orthodontist, (100 orthodontic locations), and United Health Services (150 allied health businesses), both of whom will promote Openpay to members from January.
In Home improvement, the most significant new merchant agreement signed was with Bureau Booths.
In the Memberships vertical, a contract was signed with Capital Football, who will use Openpay for all their representative teams in the ACT.
In Education, deals were closed with Logitrain, Advanced Training and Stay Tooned.
Quarterly TTV growth reaches new inflection point in Q2 FY21
In Q2 FY21, Openpay recorded a new TTV inflection point, with a 43% QoQ uplift to $97.1m and sustained accelerated growth, with 96% uplift on a pcp basis. This growth was driven by Black Friday trading and recent brand launches with major Australian retailers such as ASX-listed online retailer, Kogan (ASX: KGN) and Surfstitch.
A daily TTV record of >$1m was achieved following on from Black Friday trading, and more than $5 million TTV was achieved during that trading week. Openpay continued to record additional >$1 million TTV days during the remainder of Q2 FY21, as a result of increased awareness and availability of Openpay, and a growing merchant base.
Growth accelerates in the UK, with next UK growth to be supported by rollout in specialised verticals
Building on its significant growth in UK Retail, Openpay is now in the process of entering into a roll-out phase within the core verticals of Automotive and Healthcare. This delivers on the strategy of building a critical mass of customers in Retail, then cross-pollinating into specialised verticals to develop Openpay’s differentiated proposition at scale in the UK.
Vertical expansion follows continued strong momentum in Openpay’s UK business during Q2 FY21, with Active Plans increasing 70% QoQ to 506k and UK Active Customers up 45% to 216k QoQ, contributing 54% and 75% of all growth in Active plans and Active Customers respectively for the quarter.
In the UK, The Hut Group (THG) launched with nine brands during the quarter including lookfantastic.com, myprotein.com, Zavvi.com and Probikekit.com. Openpay’s beauty offering expanded with the addition of fragrance brands Fragrance House, Scent Store and Perfume Direct. JD Sports continued to deliver a high number of plans and volume with its sports and outdoor brands.
Rapid adoption of Openpay in the sporting sector continued, with Hull Kingston Rovers and Elite Pro Sports launching in Q2 and the signing of Brentford FC. Meanwhile, luxury brand The Rug Company and children’s educational toys brand Nexus, further diversified the UK retail offering.
Significant post Q2 signings include established fashion brand Monsoon which is well aligned to the Openpay target demographic and an integration partnership deal with Apexx payment gateway. Apexx work with numerous enterprise retail and travel brands.
Openpay for Business revenue and sales pipeline building
Openpay for Business, the capital light, SaaS based B2B product, recorded continued revenue growth through Q2 FY21. The main contributor to this growth is Woolworths Group, who continues to transition business customers onto the Openpay platform, exclusively. During H2 FY21, Openpay expects roll-out across all stores to be complete, enabling all trade customers the ability to transact at Woolworths Group banners, including Woolworths Supermarkets and Big W, instore and online.
Openpay continues to work closely with Austrade to explore global opportunities, whilst in Australia the pipeline is building and maturing with further announcements expected in the course of 2021.
Continued strong financial performance throughout peak retail season
Openpay continues to display disciplined financial performance through healthy margins, while continuously supporting growth strategy, through peak retail season and its strongest ever portfolio growth metrics.
Gross revenue yield as a percentage of TTV was 7.5% for Q2 FY21, down from 9.1% in Q1 FY21 and down 180bps relative to pcp. Revenue yield for the first half of FY21 remains at a strong 8.1%, despite a significant seasonal volume shift toward the relatively lower margin mass Retail vertical. As part of its growth strategy, Openpay applied explicit effort toward accelerating customer acquisition in Q2, through marketing with existing Retail merchant relationships and onboarding of new large enterprise merchants like Kogan and The Hut Group. This was followed by the well-proven approach of cross-pollinating customers proactively into higher margin specialised verticals.
The net transaction margin (NTM) for the quarter followed a similar pattern to the gross revenue margin, recording 1.1% for the quarter and 1.6% for the current half. Pleasingly, the Q2 FY21 performance also noted a marked reduction in funding costs, driven by the implementation of the 255 funding facility, at more favourable rates, translating into an overall 60bps funding cost rate reduction.
The rolling three month Net Bad Debt ratio as a percentage of TTV as at Q2 FY21 remains stable, and within expected healthy levels, at 2.3% as compared to the prior comparative period (2.2%), with performance for the half maintained at a level of 2.0%.
Openpay’s funding position comfortably supported its strongest TTV growth performance yet, throughout the traditional peak retail trading season, and is positioned to further support ongoing accelerated volume growth. Cash as at 30 December totalled $39.3m (30 September 2020: $64.7m), reflecting anticipated seasonally high disbursements made to merchants, relating to seasonally heightened trade. As repayments related to peak season trade are received from customers during the current quarter (Q3 FY21: Jan – Mar 21), the Group’s cash balance will revert to normalised levels (in excess of $50m), as the Group effectively generates positive cash flow.
Combined with current, and expected, cash positions, the Group is pleased to report a robust runway that is further strengthened by the availability of a further £35m tranche in the UK (through current funder GGC). The increased headroom was confirmed through meeting all required portfolio performance requirements as at 31 Dec 2020. Overall, thus, in addition to its cash position, as at H1 FY21 Openpay has available to it $45m in undrawn Australian debt facilities and £50m in UK undrawn facilities, translating into a total funding runway of $173m to support further portfolio growth.
Imminent rollout in the US with key strategic partners
Openpay or Opy, our new US name inspired by our ASX ticker, is positioned for potential significant growth in the US following the commencement of its market launch in December. The Company expects to roll-out its consumer BNPL product, OpyPay, in the near term, with discussions now at advanced stages with strategic partners such as funding partners, payments processors and foundational merchants in its core verticals.
The US market represents a significant growth opportunity for Opy, with more modernised and cost-effective payments options required, given the payments market is in many ways far behind that of other developed countries. There is a significant demand by both consumers and merchants for Opy’s smarter way to pay, given the need for more transparent, fair, flexible and valuable payment alternatives to traditional credit cards and BNPL options that lack transparency and charge high fees. Providing an optimal solution to merchants and consumers is important considering the sheer size of the $5t US retail market and the significant US opportunity in BNPL.
In addition, there is a substantial opportunity in Opy’s key verticals of Automotive, Healthcare, Home Improvement, Sports Memberships and Education due to a lack of penetration of BNPL players in those core verticals in the US.
Brian Shniderman, Openpay US CEO and Global Chief Strategy Officer said: “The US is the key market for Openpay with growth potential and relevance for our Company significantly greater than even that seen in Australasia and Europe to-date. Merchants and retailers currently lack control or significant influence on pricing, operational requirements, rule setting, payment solution design and liability. For consumers, OpyPay our flagship BNPL product has flexible payment terms matching the unique time periods specific to their lifestyle needs. For example, a parent or patient faced with paying for an orthodontic procedure that needs to spread out a $5,000 cost, requiring 12 visits across 18 months, can be easily supported by OpyPay, where most others offer only inflexible ‘pay in 4’ instalments and/or only a 6-month maximum duration.”
In the US, Opy envisions a true partnership with merchants and retailers to allow them to reclaim the payments component of their relationship with their customers in order to achieve four objectives for merchants/retailers which are to drive top-line sales, enhance customer lifetime value, optimise the cost/value of using BNPL as a ‘better than card’ payment acceptance method, and significantly enhance consumer loyalty by directing rewards to the merchant/retailer.
Appointment of US Chief Financial Officer and establishment of US office
Opy has also strengthened its US management team with the appoint of finance executive Efrat Yellin as US Chief Financial Officer (CFO).
Mrs Yellin has over 20 years of corporate finance experience. She joins Opy from AppCard, a loyalty rewards start-up, where she was the financial officer for the last 5 years. Prior to AppCard, she was an investment banker at Deloitte Corporate Finance LLC & Merrill Lynch & Co, serving a wide range of clients in the fintech, banking and private equity industries. In addition, she has assigned ratings of over $7b asset-backed securities while at Moody’s Investor Services.
Openpay has also established its Opy USA head office in San Diego, California.
Outlook – a new period of growth
Openpay is now positioned to scale its robust business model via international expansion. The Company’s extension into core verticals in the UK and imminent rollout in the strategic payments market of the US sets the foundation for significant long-term growth, with BNPL usage expected to increase rapidly in those relatively nascent markets into the future.
In the US, a inaugural significant step has been made by hiring highly respected, well-known leaders in the US payments, merchant and banking markets. The experienced leadership team has commenced implementing Openpay’s US wholesale merchant strategy and distribution model, progressing strategic partnership coversations with aggregators and organisations which represent large merchant groups in the industry verticals where Openpay excels: Healthcare, Automotive, Home Improvement, Education, before expanding into other large ticket areas of Retail. In parallel, the US leaders have started creating large scale partnerships with payment processors, banks and large online market places, to derisk and accelerate the market entry into these industries.
As in AU and envisaged for the UK, Openpay’s US BNPL offering, OpyPay, will differentiate from that of its competitors offerings by providing a regulated product and putting emphasis on larger transaction values in markets ripe for disruption, with transparent payment options that help consumers have control over their spending and budget for life’s purchases.
Openpay will update the market on the progress of executing on our US strategy.
For a full strategic update, please view Openpay’s updated investor presentation provided to the ASX in conjunction with this announcement.
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Openpay Group Ltd (ASX: OPY) is a fast-growing and highly differentiated player in the global ‘Buy now pay later’ (BNPL) payment solutions market. The Company’s strong platform enables it to deliver the most flexible plans in the market with durations of 2–24 months and values of up to $20,000.
Openpay focuses on industries where it can make a true difference: Automotive, Healthcare, Home Improvement, Memberships and Education; and its target customers are finance-savvy and of an older demographic who use Openpay plans as a cashflow management tool.
Openpay also has a unique B2B offering, OpyPro (formerly Openpay for Business), a SaaS-based platform that allows companies to manage trade accounts end-to-end, including applications, credit checks, approvals and account management in the one system.
Openpay provides services to Customers and Merchants in Australia, New Zealand, the UK and entered the US market, under the brand name Opy, in December 2020.