Final Boss: A talk with Charlie Youakim, CEO of the stock market’s favorite buy now, pay later company, Sezzle

You may not have heard of Sezzle, a small but mighty player in the growing buy now, pay later space. 

It’s been a pretty good year for the Minneapolis fintech firm. Since being listed on the Nasdaq last year, its stock is up more than 3,680%, sending its market cap to over $2 billion. The company’s logo is now plastered on the jerseys of the Timberwolves, its hometown basketball team.

We sat down with the company’s CEO, Charlie Youakim, to talk about what’s driving the company’s success and consistent profits.

This conversation has been edited for clarity and length.

Sherwood: Your company came across my radar because I noticed that the stock skyrocketed in the past week or so. For lack of a better first question, what’s going on there?

Charlie Youakim: My guess is that people are just recognizing our performance. I think we’re a relative unknown, because we’ve been public for over five years, but over four of those years were in Australia. 

We basically built the company and scaled it as an Australian-listed public company. What we did was we got to profitability. I think at a low point our market cap was $38 million. And at that point we were annualizing $160 million in revenue and profitable and growing. I thought it was kind of ridiculous. 

So we had an incredibly low valuation last year when we direct listed on the Nasdaq. We didn’t do an IPO, it wasn’t splashy, because there was no fundraise.

We basically went through a “Field of Dreams” approach — if you build it, they will come. We delisted in Australia, we started to do slow outreach, almost like a venture-capital path: high-net-worth individuals, micro-cap funds, investment banks, just to get the ball rolling and start to make connections in the US. 

We just keep on making noise and keep on marching ahead and I think just valuation caught up in some ways to be more in line and reflective of our performance.

Sherwood: Tell me more about the decision to go public in Australia. 

Youakim: Buy now, pay later was actually invented in Australia. We noticed Afterpay, which was bought by Square, taking off in Australia. I call Australia the “USA south.” If something works in Australia, there’s a good chance it works in the United States. We decided to model ourselves off that business model and it was working incredibly well.

I talked to an analyst in Australia who covered public equities, including Afterpay, and he said, “Have you thought about fundraising in Australia?” I said no. He said, “I think it's a damn good idea, but the only way you can do it is if you go public because they don’t have a venture-capital path.” 

Australians knew that this model was going to work in the United States. So I did a non-deal roadshow in Australia in December 2018 with public-equity investors. 

It was well received by investors, so I went back to the team in the US and said I think we should go public in Australia, which is completely unusual but it worked incredibly well for us. We decided to change to the US because of really old SEC rules that require you to file with them if you have over 3,000 investors. Then we realized if we’re filing in the US, we’re mature, profitable — what’s the point of Australia anymore? They can’t really see our business, they can’t touch it, feel it. So we decided to transfer our listing, which meant a direct listing in the US and delisting in Australia. 

Sherwood: Some of your peers in the category have had not-so-great quarters, while at the same time you’re reporting consistent, growing profits. What’s going on in the industry, and what have you been able to do to set yourself apart?

Youakim: It’s hard for me to comment about others, but I can say we have an excellent team that understands our business and our customers and our stakeholders and how to win. 

I’m 47 years old, so I lived through the dot-com bust and understand that you have to make money as a company. I think a lot of people have grown up in this golden age since 2010 and they’ve never seen a downturn or understood that you eventually have to make money as a company. Honestly, now the markets are spiking, but I think people are going to keep living in this fairy tale a little bit longer.

We have this mantra and mindset within the company that we have to be a net-income-positive and a strong, net-income-generating company to be a high-quality company. I think that’s a big part of it; that’s just the mantra. We have the right mindset at the top. 

Not to sound too cocky, but for example, why is Michael Jordan able to hit the jump shot but somebody else can’t? He put in more practice, he put in more time, he understood the game, has better talent. Maybe we’re just better. Some companies are better than others.

Sherwood: But some of those same peers are much larger and more ubiquitous. Maybe a better way to phrase the question is, are there headwinds you’re somehow dodging? 

Youakim: No. I think this is a great industry. How are companies that have bigger scale than us not profitable? Your guess is as good as mine. 

I don’t know how you can say you need some more scale when there’s a company that’s a smaller size that is doing it. Our investors often ask us how we’re able to do it when these bigger companies can’t. That’s probably a better question for the bigger company.

Sherwood: You mentioned earlier that BNPL originated in Australia. Have people in the US started to warm up to it, maybe even rivaling the way they see credit cards?

Youakim: Totally. The customer likes the idea of credit but is scared of credit cards. 

We have a complete alignment with not allowing a customer to get too much access to credit. Because if a customer goes over their skis with us, and they fail to pay us, we stop them from making the next purchase, unlike credit cards, which allow you to keep purchasing and build up your balance. 

And if people go too far over their skis there is a higher likelihood they stop paying us back altogether. So we have complete financial alignment with our consumers. 

If you look at the financial-services pie, it used to be credit and debit, almost a 50-50 split. BNPL is like a slice in the middle, like a hybrid. And it's mostly taking from credit cards, because credit cards are the more dangerous credit tool for consumers. 

Sherwood: You’ve spoken about using gamification to incentivize repayments. How does that work?

Youakim: The idea behind it is: let’s reward customers for good behavior. 

Most of our customers are mid- to low-income and younger. They tend to be under the age of 35. A lot of people are new to credit. 15% don’t even have a credit score. So a lot are brand new to credit or are maybe immigrants. So our thought was, let’s teach people how to use credit properly, like we’re training wheels for credit, focusing on repayment. 

We launched payment streaks and tiers. We land everyone in the gold tier. And if you make 20 good payments in a three-month period, you rise a level. If you fail at a payment, you drop a tier. The whole idea is to gamify repayments, to teach people that there are rewards or repercussions to not paying on time. 

When we launched, people were calling our customer support asking why they dropped a tier. It became one of our top customer-service call topics. It really goes to show how much people care about these tiers and games and systems within a business even though the financial impact is pretty low. It was more just a signal or a badge, but it shows that it works. 

Sherwood: What can you tell me about consumer sentiment? Last holiday season, the story was that consumers stayed resilient amid high inflation. Will that be the case this year? 

Youakim: We have a certain demographic of customers. They’re more paycheck to paycheck. They’re always in a bit of a recession.

In our last quarterly release, we showed payment-default rate across our cohorts of customers, and we see nothing. It’s almost completely flat over the past five quarters or so. We are not seeing anything that shows any issues whatsoever with our customer, the Sezzle customer. 

Does that mean we’re not going to have a recession? I don’t think our customer is totally indicative of that.