The Splitit Business Model – How Does Splitit Make Money?

Executive Summary:

Splitit is a FinTech company that provides ‘Buy Now, Pay Later’ (BNPL) solutions to both merchants and customers.

Splitit makes money via fixed and variable fees that are paid by the merchants it partners with. The fee structure is dependent on when the payment is transferred as well as the country the merchant is based in.

Founded in 2009, Splitit has grown to become one of the bigger BNPL providers around the world. The company went public on the Australian Stock Exchange in February 2019.

What Is Splitit?

Splitit is a FinTech company that provides ‘Buy Now, Pay Later’ solutions to both merchants and customers.

Customers can settle their purchases within 3 to 24 instalments. The first payment is made during the purchase while future ones are automatically deducted on the same date for every subsequent month.

Once a customer is on a partnering merchant’s checkout page, he or she can choose the Splitit payment option and pick the number of desired instalments.

Splitit customers do not pay any interest nor are they charged late payment fees. Splitit differentiates itself from other BNPL providers by allowing customers to use their credit and debit cards to make payments.

As such, there is no application or credit score checking process when signing up for Splitit. Therefore, purchases also don’t affect a customer’s credit score.

Splitit works together with thousands of merchants in categories such as automotive, beauty, electronics, fashion, health, and more.

For its merchant partners, Splitit has developed its very own payment gateway (called Splitit Plus) which can be integrated into any commerce software (such as BigCommerce, Magento, or Shopify).

To that extent, merchants can offer Splitit’s payment solution both online as well as within their physical stores.

Splitit is currently available in over 100 countries across the world. Customers and merchants can access its platform via the firm’s website.

How Splitit Started: Company History

Splitit, headquartered in New York City, was founded in 2009 by Israeli entrepreneurs Alon Feit and Gil Don.

Feit and Don, who both grew up in Israel, gained decades of experience in the fields of finance and IT before beginning work on Splitit.

In fact, while they did conceive of the idea for what would later become Splitit, they actually continued working full-time up until 2015.

Feit, on the one side, held various chief executive roles at companies like Europ Assistance and Shufersal Finance. Don, on the other hand, managed sales teams for IT firms like Ankor Systems or Dell EMC.

Their respective jobs allowed them to work in a variety of countries, such as Brazil or Israel. In these countries, paying for goods with credit was just as common as paying in full. In the late 2000’s, a small Sweden-based startup called Klarna began making news for its novel BNPL solution.

Around the same time, Don and Fein filed a patent for “a system and method for Facilitating Credit Transactions, which may allow for the division of a given purchase or cash-withdrawal transaction amount, into periodical installments by enabling the financing of said transaction.”

However, it took another five years until that system finally came to fruition. By March 2014, the company had finally managed to patent the underlying technology that would power Splitit’s payments.

In October 2014, after close to five years of working on the concept, Don and Fein launched PayItSimple to consumers in the United States. The company simultaneously moved its headquarters from Tel Aviv (Israel) to New York City.

splitit old website
Wayback Machine

The founders chose the United States as their first market not only due to the country’s sheer market size but due to a lack of competition. At the time, less than a handful of companies, including Affirm, had even begun to offer similar services. As such, there wasn’t any clear and established company that had already cornered the market.

Soon after establishing themselves in the United States, both founders decided to quit their cushy jobs and pursue their idea on a full-time basis. Their commitment was rewarded not long after – in May 2015, the company raised a $10 million round of funding led by Simpel Management.

Just two months after that funding announcement, PayItSimple expanded into the United Kingdom, their first foreign market. Then, in October, they rebranded to become the company we know today: Splitit.

Over the coming years, Splitit continued to expand its merchant base as well as features that it offered to merchants. In 2018 alone, the company added debit card payments (previously only credit cardholders were able to use Splitit) as well as integrations with the likes of Magento and Salesforce.

Those initiatives eventually all paid off and culminated in the company going public on the Australian Securities Exchange (ASX) in February 2019. Sydney-based Afterpay was the first BNPL provider going public on the ASX back in 2017, other companies like Laybuy, Zip, Sezzle, and Splitit subsequently followed up with IPOs of their own.

Being a public company provided Splitit with the necessary credibility to not only expand its merchant base but show potential partners that the company has the financial means to become sustainable.

To fuel its growth initiatives, the company raised an AU$30 million round in May 2019. Over the course of 2019, the company entered a variety of partnerships that substantially increased its global footprint. In July, for instance, it closed a deal with Malaysia-based GHL ePayments, allowing them to tap into more than 2,000 online merchants in Malaysia, Thailand, Indonesia and the Philippines.

However, those initiatives were not being pushed by CEO Gil Don, who took over from Alon Feit in 2015. Don stepped down from his chief executive role to become the company’s manager of the EMEA region. Brad Paterson, previously Splitit’s Head of North America, became the firm’s newest CEO.

Under his tenure, innovation and growth remained undeterred. Just weeks into his new job, the company launched Splitit Business Payments, which now even allowed B2B transactions to be paid in instalments.

Those initiatives continued well into 2020. In January, Splitit announced a partnership with Stripe, which would serve as their new payment facilitator for all new merchants who accept Splitit. Subsequent announcements regarding partnerships with VISA and Mastercard would follow.

However, the biggest accelerant to its growth was the coronavirus pandemic. Lockdown measures forced people to turn to online shopping, many of whom discovered instalment-based payments for the first time ever. As a result, the firm’s revenue almost tripled.

To continue to take advantage of those developments, Splitit raised another round of funding in August, this time netting them US$71.5 million. This came amidst the news that powerhouses like PayPal and Grab would begin offering BNPL services to their customers as well.

On the backbone of its exceptional growth, Splitit continued to expand its products and partner pool. In January 2021, it announced a partnership with Google in Japan, allowing it to be integrated into the local Play Store.

The growth initiatives were supported by another massive fundraise. This time, in February, the company took out a loan worth US$150 million from Goldman Sachs. In the coming months, Splitit announced dozens of new partnerships such as with UnionPay in China or tabby, the leading Middle East BNPL provider.

Despite the continued strong growth, Splitit also remained highly unprofitable. The company lost around US$25 million in 2020 alone. As a result, in August 2021, the firm’s board decided to replace chief executive Brad Paterson with immediate effect.

How Does Splitit Make Money?

Splitit makes money via fixed and variable fees that are paid by the merchants it partners with. The fees vary depending on when merchants want to receive the money as well as their country of residence.

For instance, if a merchant wants to receive the full amount of the purchase up front, then Splitit charges a 3 percent variable and $1 fixed fee per instalment. A merchant would then pay $4 in fees on a $100 purchase ($3 in variable and $1 in fixed fees) if the customer pays in one instalment.

Conversely, Splitit charges a 1.5 percent variable and $1.5 fixed fee for merchants that want to get paid as shoppers pay their monthly instalments.

Splitit differentiates itself from its competitors in a multitude of ways. First, as opposed to competitors like Affirm, Quadpay, or Sezzle, the company does not impose any late payment (or other penalty) fees on customers.

Second, users can settle instalments via the available credit they have on their debit and credit cards. Splitit’s patented technology simply blocks the amount of money on the user’s card and subtracts it based on the instalment plan they have chosen.

Even though merchants are the ones that pay the fees, they end up profiting in a variety of other ways. For once, average order values substantially increase when a merchant provides BNPL options (Splitit claims its solutions can increase the average order value by up to 80 percent).

Furthermore, its solution can lead to an increase in conversion rates because customers don’t have to fill out an application and can use their existing credit to make purchases. Splitit claims that it can increase conversions by up to 30 percent.

To that extent, the company has begun to build an ecosystem around its payment service. For instance, its solution can be integrated into a variety of e-commerce platforms like Magento or Shopify.

Second, the company has introduced a white-label solution with which other BNPL providers can take advantage of its technology. The previously mentioned tabby, a BNPL provider out of the Middle East, now uses Splitit’s technology to power its own service. Splitit, in turn, receives a portion of the revenue that tabby generates.

The company has even expanded into in-store payments as well as B2B solutions. Now, companies can pay each other using Splitit’s technology. Given that B2B transactions are less risky (compared to customers not being able to make payments) as well as have higher order values, it can be assumed that this can become another lucrative income stream for Splitit.  

Splitit Funding, Revenue & Valuation

According to Crunchbase, Splitit has raised a total of US$264.6 million across six rounds of debt and equity financing.

Notable investors include Woodson Capital Management, Goldman Sachs, Simpel Management, Prytek, and many others.

When Splitit went public in January 2019, its business was valued at AU$54 million. Today, its valuation has risen to above AU$200 million.

For the fiscal year 2020, Splitit has generated US$8.4 million in revenue, up 300 percent from the previous year (US$2.1 million).  

Hi folks, Viktor checking in! Years of experience in various tech-related roles have led me to start this blog, which I hope provides you with as much enjoyment to read as I have writing the content.