The failure of WeWork’s IPO captured an inordinate amount of attention around the world but arguably the Latitute IPO flop is just as notable. This is the second failed Latitude IPO and asks serious questions about the entire buy now pay later sector.
For Latitude to try and fail to get one IPO away is a misfortune. To repeat the trick a second time starts to look a tad careless.
If one believed the pre-IPO hype, Latitude was going to raise about A$1.4bn worth of shares. To be exact, it planned to price its shares at about A$2 to A$2.25.
Just ahead of the sale, it slashed the number of shares on offer to about A$1bn. Moreover, it planned a cut-price share price of A$1.78. But the lowered ambitions still failed to attract sufficient interest and the sale was pulled.
Latitude, a little like WeWork has been over-hyped. And both firms have been led by controversial leaders. Both claim to be cutting edge fintechs disrupting their respective market sectors.
Latitude’s principal claim is to be Australia’s largest non-bank lender in the retail finance sector.
Latitude dates back to 1920s
It is however anything but a new challenger or a start-up.
It can date its roots way back to the 1920s as Australian Guarantee Company. In 2002, the firm was acquired by GE Money in 2002 from Australian bank Westpac.
GE sold out to a consortium including private equity outfit KKR and Deutsche Bank in 2015.
It would be a mistake to under-estimate the significance of the deal at the time. The consumer finance arm of GE in Australia and New Zealand comprised over 3 million customers. Moreover, it enjoyed long-standing deals with many of the largest retailers in both markets.
The firm subsequently re-branded as Latitude.
And it is under the Latitude banner that the firm starts to become rather interesting. For example, it hired no doubt at some expense, actor Alec Baldwin to front its advertising campaign.
Latitude targeted the big four banks’ dominance of the credit cards and personal loans segments.
As well as its high profile marketing Latitude sought to design itself as a fintech despite being a century old.
In particular, Latitude took aim at the buy-now-pay later market leader Afterpay.
But as Australian payments experts such as Grant Halverson, CEO of McLean Roche Consulting never tire of point out, the sector itself is modest.
As Halverson notes, the Buy Now Pay Later (BNPL) spend in Australia and New Zealand totalled A$8.4bn or 50 basis points of total electronic transactions in both countries. BNPL companies do not split out Australian sales.
The RBA says Australian BNPL spend was A$6bn in 2018. The average Australian growth rate for 12 months was 77% with monthly sales of $590 million verses debit cards at $28 billion per month.
These sales figures compare equally with pre-paid cards, while BNPL has 4.67 million consumers spending A$1,304 per annum in Australia.
Latitude: senior management musical chairs
Moreover, growth prospects for Latitude look less exciting than it would have you believe. And while there is an uptick in receivables, there is also an increase in bad debts.
In the case of Latitude, it did not help that it is on its third set of management in the past five years. The Latitude CEO package is not quite on a par with the telephone numbers at WeWork. But the overall package at Latitude including a basic salary of over A$4m a year did not attract positive headlines.
The buy-now-pay later sector in Australia suffers not just from issues of bad debts-about 90-130 basis points-and low margins.
There remains on the horizon the potential for greater regulation.
Arguably, far greater regulation is overdue with increasing numbers of Australian consumers in bother as a result of overspending.
The sector is also becoming somewhat overcrowded. While more than 1 in 10 women have used buy-now-lay-later in the past year-double the rate for men-new players are in play.
Take New Zealand’s Laybuy for example. New Zealand’s largest buy-now, pay-later service has launched in Australia in partnership with more than 1200 Australian retailers.
Laybuy offers split payments in six weekly instalments, instead of four fortnightly ones offered by the likes of Afterpay.
It differs in one further respect from Latitude. Laybuy remains in firmly private hands and says it has no plans to go private.
In the light of the Latitude experience and growing calls for greater regulation of the sector, that may be just as well.