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- Buy now, pay later competitor Sezzle (SZL) says the California Department of Business Oversight (DBO) denied its lending licence application
- The department released the news on December 30, claiming the licence was denied because of Sezzle’s “illegal unlicensed lending in the state”
- Furthermore, the DBO said this business model is in violation of the California Financing Law
- Sezzle said it will keep working with the DBO to resolve the issues that caused the licence denial
- The company has 15 days to appeal the DBO’s decision
- Sezzle is down 18.42 per cent today with shares last selling for $1.70 each
Buy now, pay later competitor Sezzle (SZL) has hit a U.S. hurdle as the California Department of Business Oversight (DBO) denied its lending licence application.
The government department released the news on December 30 while Australians slept, claiming the licence was denied because of Sezzle’s “illegal unlicensed lending in the state”. Essentially, the DBO has an issue with Sezzle’s business model.
Sezzle follows the trend of other big players in the buy now, pay later sector by allowing shoppers to pay for ordinary items in four interest-free instalments as opposed to forking out the full price in one hit.
The company charges merchants a fee on every transaction through Sezzle’s platform and charges consumers late fees for missed payments.
The DBO said Sezzle targets “young consumers who are unable to qualify for traditional financing options, like credit cards”.
Furthermore, the department said this business model is in violation of the California Financing Law.
“Under the guise of purchasing from merchants already-consummated credit sale contracts – which may not be covered by the CFL – Sezzle designed its financing product to evade California and federal law.”
California Department of Business Oversight, December 2019
However, the rejection of the lending licence does not stop Sezzle from operating in California. Rather, it stops the company from smoothing out operations by cutting out a middle-man.
Currently, the company explained, merchants will initiate sales contracts then assign those contracts to Sezzle in order for the company to service the payment processing. Under this model, Sezzle acts as a sales finance company and does not make loans.
Sezzle said in an announcement to the ASX today its goal is to remove these merchants from the financing process.
Furthermore, Sezzle said it will keep working with the DBO to resolve the issues that caused the licence denial. The company said an unnamed competitor which operates under a similar model was approved for the same licence by the DBO, so it believes there is a path to resolution.
Though not explicitly stated, this unnamed competitor is likely referring to Afterpay, which was granted the lending licence in California in November 2019.
In fact, Afterpay released its own announcement to the ASX today confirming it had been granted the licence in question. Afterpay’s statement was a response to market queries about Sezzle being denied its application.
Sezzle has 15 days to appeal the DBO’s decision.
Despite the company’s confidence in finding a resolution, however, Sezzle’s share price slumped in the first trading session of the year.
The Minnesota-based company is down 18.42 per cent today with shares last selling for $1.70 each.
