How does Sezzle make money?

Sezzle is a fintech company operating in the United States and Canada. It was founded by Charlie Youakim, Paul Paradis, and Killian Brackey in 2016.

Youakim and Paradis, who met while studying their MBAs in Minnesota, created Sezzle as a payment platform that would compete with the likes of PayPal.

The pair even went as far as calling the platform PayPal 2.0 for merchant processing, envisioning a service where merchants were charged 50% less and consumers could earn cashback rewards on their purchases. Unfortunately, the service failed to gain any traction. 

While Youakim’s wife was scrolling through Instagram one day, she noticed Afterpay being offered as an option for merchants in Australia.

In May 2017, Sezzle pivoted to offering interest-free credit to young people who preferred to make purchases with their debit cards.

The founders then sought funding in the United States, but the buy-now-pay-later movement was still in its infancy there. As a result, Youakim and Paradis decided to hold an IPO on the Australian Stock Exchange. 

The company raised $30 million on the first day of trading and by the time of the IPO in July 2019, Sezzle could already boast over 5,000 merchants and 430,000 customers.

Like many businesses, Sezzle profited enormously from the coronavirus pandemic as many shoppers migrated to making purchases online.

During this time, the platform entered into partnerships with Google Pay and Apple Pay to allow its payment service to be used for in-store purchases. 

Merchant fees for 2020 increased by 266.9% over the previous year, with Sezzle adding over 1.3 million active users over the same period.

Sezzle revenue generation

Sezzle has a relatively simple revenue generation strategy. The service is essentially free to consumers, provided they pay on time.

With that said, below is an overview of how the company makes its money.

Merchant fees

Like most buy-now-pay-late providers, Sezzle derives most of its income from merchant fees.

The merchant fee is charged at a flat rate of $0.30 plus 6% of the total transaction amount.

Merchants who enjoy higher order volumes may be able to negotiate a custom rate with Sezzle. 

The merchant fee may also be negotiable for non-profits and businesses operating in certain industries.

Rescheduled payment fee

Consumers who want to reschedule the payments on a purchase for the second or third time are also charged a fee.

It should be noted that the first reschedule is free, enabling the consumer to push a payment date out by up to a fortnight.

The exact rescheduling fee depends on individual state regulations and the region where the purchase was made. Generally speaking, the rescheduling fee is around $5. 

Failed payment fee

If Sezzle is unable to process a payment, a $10 failed payment fee is added to the total amount owed.

However, this fee is waived if the individual manages to make the payment within 48 hours of the due date.

Key takeaways

  • Sezzle is a fintech company founded by Charlie Youakim, Paul Paradis, and Killian Brackey in 2016. Co-founders Youakim and Paradis created Sezzle to compete with PayPal but later pivoted after seeing the value in buy-now-pay-later.
  • Sezzle derives much of its income from merchant fees, with merchants charged $0.30 plus 6% of the total transaction amount.
  • Sezzle is essentially free to consumers provided they make payments by the due date. For late or failed payments the fee is $10. There are also fees associated with rescheduling payment dates.

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List of FinTech Business Models

Acorns

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Acorns is a fintech platform providing services related to Robo-investing and micro-investing. The company makes money primarily through three subscription tiers: Lite – ($1/month), which gives users access to Acorns Invest, Personal ($3/month) that includes Invest plus the Later (retirement) and Spend (personal checking account) suite of products, Family ($5/month) with features from both the Lite and Personal plans with the addition of Early.

Affirm

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Started as a pay-later solution integrated to merchants’ checkouts, Affirm makes money from merchants’ fees as consumers pick up the pay-later solution. Affirm also makes money through interests earned from the consumer loans, when those are repurchased from the originating bank. In 2020 Affirm made 50% of its revenues from merchants’ fees, about 37% from interests, and the remaining from virtual cards and servicing fees.

Alipay

how-does-alipay-make-money
Alipay is a Chinese mobile and online payment platform created in 2004 by entrepreneur Jack Ma as the payment arm of Taobao, a major Chinese eCommerce site. Alipay, therefore, is the B2C component of Alibaba Group. Alipay makes money via escrows transaction fees, a range of value-added ancillary services, and through its Credit Pay Instalment fees.

Betterment

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Betterment is an American financial advisory company founded in 2008 by MBA graduate Jon Stein and lawyer Eli Broverman. Betterment makes money via investment plans, financial advice packages, betterment for advisors, betterment for businesscash reserve, and checking accounts.

Braintree

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Venmo is a peer-to-peer payments app enabling users to share and make payments with friends for a variety of services. The service is free, but a 3% fee applies to credit cards. Venmo also launched a debit card in partnership with Mastercard. Venmo got acquired in 2012 by Braintree, and Braintree got acquired in 2013 by PayPal.

Chime

how-does-chime-make-money
Chime is an American neobank (internet-only bank) company, providing fee-free financial services through its mobile banking app, thus providing personal finance services free of charge while making the majority of its money via interchange fees (paid by merchants when consumers use their debit cards) and ATM fees.

Coinbase

coinbase-business-model
Coinbase is among the most popular platforms for trading and storing crypto-assets, whose mission is “to create an open financial system for the world” by enabling customers to trade cryptocurrencies. Its platform serves both as a search and discovery engine for crypto assets. The company makes money primarily through fees earned for the transactions processed through the platform, custodial services offered, interest, and subscriptions.

Compass

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Compass is a licensed American real-estate broker incorporating online real estate technology as a marketing medium. The company makes money via sales commissions (collected whenever a sale is facilitated or tenants are found for a rental property) and bridge loans (a service allowing the seller to purchase a home before the revenue from the sale of their previous home is available).

Dosh

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Dosh is a Fintech platform that enables automatic cash backs for consumers. Its business model connects major card providers with online and offline local businesses to develop automatic cash back programs. The company makes money by earning an affiliate commission on each eligible sale from consumers.

E-Trade

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E-Trade is a trading platform, allowing investors to trade common and preferred stocks, exchange-traded funds (ETFs), options, bonds, mutual funds, and futures contracts, acquired by Morgan Stanley in 2020 for $13 billion. E-Trade makes money through interest income, order flow, margin interests, options, future and bonds trading, and through other fees and service charges.

Klarna

how-does-klarna-make-money
Klarna is a financial technology company allowing consumers to shop with a temporary Visa card. Thus it then performs a soft credit check and pays the merchant. Klarna makes money by charging merchants. Klarna also earns a percentage of interchange fees as a commission and for interests earned on customers’ accounts.

Lemonade

how-does-lemonade-make-money
Lemonade is an insurance tech company using behavioral economics and artificial intelligence to process claims efficiently. The company leverages technology to streamline onboarding customers while also applying a financial model to reduce conflicts of interest with customers (perhaps by donating the variable premiums to charity). The company makes money by selling its core insurance products, and via its tech platform, it tries to enhance its sales.

Monzo

how-does-monzo-make-money
Monzo is an English neobank offering a mobile app and a prepaid debit card for consumers and businesses. It was one of the first app-based banks to enter the UK market, founded by Gary Dolman, Jason Bates, Jonas Huckestein, Paul Rippon, and Tom Blomfield in 2015. All were employees of Starling Bank, a similar neobank challenging the dominance of established financial institutions in England. The company enjoys many revenue streams: business and consumer subscriptions, interchange and overdraft fees, personal loans, and more.

NerdWallet

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NerdWallet is an online platform providing tools and tips on all matters related to personal finance. The company gained traction as a simple web application comparing credit cards. NerdWallet makes money via affiliate commissions determined according to the affiliate agreements.

Quadpay

how-does-quadpay-make-money
Quadpay was an American fintech company founded by Adam Ezra and Brad Lindenberg in 2017. Ezra and Lindenberg witnessed the rising popularity of buy-now-pay-later service Afterpay in Australia and similar service Klarna in Europe. Quadpay collects a range of fees from both the merchant and the consumer via merchandise fees, convenience fees, late payment, and interchange fees.

Revolut

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Revolut an English fintech company offering banking and investment services to consumers. Founded in 2015 by Nikolay Storonsky and Vlad Yatsenko, the company initially produced a low-rate travel card. Storonsky in particular was an avid traveler who became tired of spending hundreds of pounds on currency exchange and foreign transaction fees. The Revolut app and core banking account are free to use. Instead, money is made through a combination of subscription fees, transaction fees, perks, and ancillary services.

Robinhood

how-does-robinhood-make-money
Robinhood is an app that helps to invest in stocks, ETFs, options, and cryptocurrencies, all commission-free. Robinhood earns money by offering: Robinhood Gold, a margin trading service, which starts at $6 a month, earn interests from customer cash and stocks, and rebates from market makers and trading venues.


SoFi

how-does-sofi-make-money
SoFi is an online lending platform that provides affordable education loans to students, and it expanded into financial services, including loans, credit cards, investment services, and insurance. It makes money primarily via payment processing fees and loan securitization.


Squarespace

how-does-squarespace-make-money
Squarespace is a North American hosting and website building company. Founded in 2004 by college student Anthony Casalena as a blog hosting service, it grew to become among the most successful website building companies. The company mostly makes money via its subscription plans. It also makes money via customizations on top of its subscription plans. And in part also as transaction fees for the website where it processes the sales.

Stash

how-does-stash-make-money
Stash is a FinTech platform offering a suite of financial tools for young investors, coupled with personalized investment advice and life insurance. The company primarily makes money via subscriptions, cashback, payment for order flows, and interest for cash sitting on members’ accounts.

Venmo

how-does-venmo-make-money
Venmo is a peer-to-peer payments app enabling users to share and make payments with friends for a variety of services. The service is free, but a 3% fee applies to credit cards. Venmo also launched a debit card in partnership with Mastercard. Venmo got acquired in 2012 by Braintree, and Braintree got acquired in 2013 by PayPal.

Wealthfront

how-does-wealthfront-make-money
Wealthfront is an automated Fintech investment platform providing investment, retirement, and cash management products to retail investors, mostly making money on the annual 0.25% advisory fee the company charges for assets under management. It also makes money via a line of credits and interests on the cash accounts.

Zelle

how-does-zelle-make-money
Zelle is a peer-to-peer payment network that indirectly benefits the banks’ consortium that backs it. Zelle also enables users to pay businesses for goods and services, free for users. Merchants pay a 1% fee to Visa or Mastercard, who share it with the bank that issued the card.

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