Limepay secures $21 million in pre-IPO funding, as it gears up to turn the BNPL sector on its head

Yet another Australian buy-now pay-later competitor is gearing up to list on the ASX, having raised $21 million in pre-IPO capital.

Limepay differentiates itself from rivals like Afterpay, Zip Pay and newcomer Klarna by offering businesses an online payments platform fully integrated with their brands, including BNPL functionality.

Founded in 2017, the business announced a $6 million raise in May this year.

Since then, it’s seen what chief revenue officer Dan Peters calls “real hockey stick growth”.

Limepay is seeing quarter-on-quarter growth of about 250%, he says, with underlying merchant sales hitting $95 million, on a seven-day annualised run-rate.

This fresh funding comes from a group of high-net-worth and institutional investors, including both existing and new backers, and yet more funding is expected ahead of an initial public offering in 2021.

A BNPL bonanza

The BNPL space has seen a frenzy of activity in 2020, with the shift to online shopping having led to an uptick in popularity of BNPL products and a swathe of new entrants storming into the market.

However, a report from ASIC last month showed consumers are struggling to meet repayments on their purchases, with some ending up in financial difficulty as a result.

Elsewhere, the chief executives of Klarna and Afterpay have engaged in a war of words over merchant fees, with Klarna Australia’s Fran Eireira telling SmartCompany high fees are “a burden” to the Australian retail sector.

Limepay makes the bulk of its revenues through merchant fees, charging a percentage on both for payments in full and BNPL sales. Peters says the fees depend on the vertical, and differ depending on the individual merchant.

However, co-founder Tim Dwyer stresses that while the business model mirrors that of Limepay’s competitors, the product itself is different.

Instead of directing customers to purchase more through the Limepay platform, it encourages them back to the merchant.

“It’s very much a brand-led approach, and that’s a very different model to third-parties,” he explains.

“That’s where this space is evolving.”

A race to the bottom in terms of merchant fees is not the way to go here, he adds. While using Limepay comes at a price, the business says merchants also get user data and insights, and ownership over the payments relationship, in return.

With some of its competitors, merchants are paying a fee, and then sending customers away to a third party.

“What is it doing to your business in the long term?” Dwyer asks. “You will end up losing your customer base if you do that.”

Peters suggests allowing a business to build a relationship with their customer throughout the payments experience actually leads to more revenue for them.

“It’s going to be really important to make payments a core part of their offering, to get closer to their customers,” he explains.

“Bouncing their customers to a third party and having those customers essentially leak out into those marketplaces is a very precarious place to be.”

The best deal for consumers?

When asked whether such products lead to the best outcome for consumers, Peters notes that it’s clear consumer sentiment is changing. There’s more demand than ever for BNPL products.

The sector is in its early days, and he admits there are kinks that have to be ironed out.

“But, what is clear is that 19.9% APR on a credit card that never talks to you when you’re about to miss a payment and logs huge interest rate fees is not a good outcome for consumers,” he says.

“The younger millennials are flat out rejecting that.”

The evolution of the sector is partly why Peters and Dwyer believe it’s time to move to the next phase of growth for Limepay — and for an IPO.

This funding will allow the startup to embark on a hiring spree, to build out its team. Then, the founders have their eyes on expanding internationally.

And, while they won’t be drawn on their long-term growth goals, they do believe their approach to the BNPL boom is the right one. They see their competitors as essentially operating as marketplaces, which isn’t as attractive to retailers.

Dwyer talks about “transformative” payments experiences. It’s the seamless payments process that made Uber so revolutionary, for example.

“Once you’ve had that, you never go back.”

That’s what Limepay intends to bring to retail, he says. Between BNPL and payment methods such as Apple wallet, there’s an abundance of technology now available in the retail space.

“All these things come together in a very cohesive vision around brand and a customer experience,” Dwyer says.

“There are so many places and opportunities there that I don’t feel are as strong if you’re a third-party marketplace.”