The Hidden Costs of Buy Now, Pay Later: Exposing Sezzle’s Questionable Practices

The Buy Now, Pay Later (BNPL) market has seen meteoric growth in recent years, with companies like Sezzle Inc. (NASDAQ: SEZL) at the forefront of this financial revolution. Founded in 2016 and headquartered in Minneapolis, Sezzle has marketed itself as a purpose-driven company aimed at promoting financial inclusion by enabling consumers to pay for purchases over time. The company’s sleek app, enticing promises, and 71% year-over-year revenue growth have made it a favorite among investors, with its stock skyrocketing 2,015% in just one year.But beneath the glossy exterior lies a troubling story of high-risk lending, consumer exploitation, and insider cash-outs. Sezzle’s rapid ascent has been fueled by practices that raise serious questions about its sustainability, ethics, and impact on consumers. This article takes a deep dive into Sezzle’s operations, revealing the risks and misconducts that have been overshadowed by its financial success.

$SEZL Promotional Material

What Is Sezzle? A Background on the BNPL Platform

Sezzle operates in the booming Buy Now, Pay Later (BNPL) sector, a financial innovation that has rapidly reshaped consumer spending habits. BNPL allows customers to divide their purchases into four equal installments, typically paid every two weeks, often with no interest or fees if payments are made on time. This model has gained traction among younger, credit-averse consumers who prefer alternatives to traditional credit cards.

Sezzle’s platform is designed to bridge the gap between consumers and merchants. For merchants, Sezzle offers an opportunity to boost sales by attracting shoppers who might otherwise forgo purchases due to immediate cost concerns. Sezzle charges these merchants a fee ranging from 4% to 6% of each transaction, making it an attractive option for businesses aiming to increase conversion rates and average order values.

For consumers, Sezzle presents itself as an inclusive financial tool, claiming to promote “financial empowerment” by enabling access to credit for those who might struggle to qualify for traditional credit cards. The platform does not perform hard credit checks, instead using its proprietary Prophet scoring system to evaluate applicants. This scoring system purportedly assesses a consumer’s ability to repay based on a combination of factors, including income, spending habits, and repayment history on previous BNPL transactions.In addition to its core BNPL offering, Sezzle has expanded its product suite with subscription-based services like “Sezzle Premium” and “Sezzle Anywhere.” These products aim to enhance user flexibility and accessibility.

For a monthly fee of $12.99, Sezzle Premium provides consumers with access to exclusive deals and discounts at partnered merchants. Sezzle Anywhere, priced at $17.99 per month, creates a virtual Visa card that allows users to split payments at virtually any retailer that accepts Visa, broadening the platform’s utility.However, beneath this innovation lies a stark reality: Sezzle’s reliance on high-risk lending and its focus on subprime borrowers. Unlike traditional lenders that cater to creditworthy individuals, Sezzle primarily targets consumers with low credit scores or no credit history. This strategy has raised concerns about its long-term sustainability, as these borrowers are more likely to default on payments, creating a cascade of financial risks for both Sezzle and its users.

Additionally, Sezzle’s business model hinges on encouraging repeat usage. By integrating with thousands of merchants and embedding its services directly into checkout processes, Sezzle aims to create a seamless experience that keeps users within its ecosystem. Yet, this approach has also drawn criticism for fostering unhealthy financial behaviors among consumers who may overextend themselves.The company’s rapid growth has not come without scrutiny. As Sezzle aggressively expands its footprint, it faces mounting questions about the ethics of its operations, the quality of its underwriting practices, and the true cost of its promise to “financially empower the next generation.”

The Red Flags: Risky Lending and Borrowing Practices

High-Risk Loans to Subprime Borrowers

Sezzle’s core market comprises consumers with poor credit who are unable to access traditional financing options. While this aligns with the company’s stated mission of financial inclusion, it inherently exposes Sezzle to significant financial risk. By catering to subprime borrowers, Sezzle effectively operates on a precarious foundation where loan defaults are an inevitable part of the equation.To fund its operations, Sezzle relies heavily on a high-interest line of credit from non-traditional lender Bastion Management.

As of 2024, the company’s outstanding line of credit stood at $95 million, with an effective annual interest rate of 12.65%. This interest rate is alarmingly high compared to traditional credit lines, reflecting the inherent risk associated with Sezzle’s borrower demographic. In 2023, the average interest rate on Sezzle’s line of credit reached a staggering 16.78%, further underscoring the financial strain.Compounding these challenges is Sezzle’s approach to credit scoring. The company’s proprietary Prophet system eschews traditional FICO scores in favor of a simplified A, B, or C rating system. While the system is intended to provide a more nuanced assessment of creditworthiness, it lacks transparency and comparability to established credit metrics.

Alarmingly, loans classified as “C-rated” — the riskiest tier — grew by 22% in 2024 and now constitute 29% of Sezzle’s total loan portfolio. This increase in high-risk loans reflects a deliberate strategy to expand its customer base by loosening underwriting standards, a move that could backfire as defaults rise.Rising Provisions for Credit LossesSezzle’s provision for credit losses provides a stark illustration of the risks embedded in its business model. In 2024, provisions for bad loans surged by 130% year-over-year, even as the total loan book grew by a mere 6%. This disproportionate growth in credit loss provisions highlights the deteriorating quality of Sezzle’s loan portfolio and raises serious questions about its ability to manage risk effectively.Historically, Sezzle has faced criticism for underreporting bad debts. In 2022, the company slashed provisions for uncollectible accounts from 3.5% of underlying merchant sales to just 1.2%, a move it attributed to improved collection practices.

Critics argue that this adjustment was more about creating an illusion of profitability than reflecting genuine operational improvements. By minimizing provisions, Sezzle temporarily boosted its earnings, but at the cost of obscuring the true financial risks it faced.The Vicious Cycle of Risky BorrowingSezzle’s reliance on expensive borrowing to fund high-risk loans creates a vicious cycle that jeopardizes its long-term sustainability. As loan defaults rise, the company is forced to set aside more capital for credit losses, further straining its already high-cost borrowing structure.

This cycle not only erodes profitability but also undermines investor confidence, as evidenced by the company’s history of stock price volatility.Moreover, Sezzle’s willingness to “open the funnel” to riskier borrowers, as stated in its 2024 earnings call, reflects a troubling prioritization of short-term growth over long-term stability. By aggressively expanding its customer base without adequately addressing the underlying risks, Sezzle risks amplifying the financial vulnerabilities that have plagued the BNPL sector as a whole.

The Human Cost of Risky Lending

While Sezzle’s financial metrics paint a concerning picture, the human impact of its practices is equally troubling. Many of Sezzle’s customers are financially vulnerable individuals who turn to BNPL as a last resort. By extending credit to these consumers without rigorous safeguards, Sezzle exacerbates their financial struggles, often trapping them in cycles of debt.Customer complaints highlight the emotional and financial toll of Sezzle’s practices. Stories of unexpected fees, aggressive debt collection, and difficulty navigating repayment plans are common. These experiences underscore the ethical dilemmas inherent in Sezzle’s business model and call into question its commitment to “financial empowerment.”

Better Business Bureau Rating For $SEZL

Consumer Complaints and Questionable Subscription Practices

Sezzle’s consumer-facing practices have drawn significant criticism, with many users alleging deceptive tactics and poor customer service. The Better Business Bureau (BBB) has recorded 986 complaints against Sezzle over the past three years, resulting in a dismal 1.1-star average rating. These complaints paint a troubling picture of a company that prioritizes growth over customer satisfaction.Unethical Subscription EnrollmentOne of the most frequent complaints involves Sezzle’s subscription services, “Sezzle Premium” and “Sezzle Anywhere.” Customers allege they were enrolled in these services without their knowledge or consent, only discovering the recurring charges after they appeared on their bank statements. This issue is so widespread that Sezzle’s own FAQ page includes a section titled, “I don’t remember signing up for Sezzle Premium or Anywhere,” an implicit acknowledgment of the problem.

These subscriptions, priced at $12.99 and $17.99 per month respectively, are marketed as optional enhancements. Sezzle Premium offers access to exclusive deals at select merchants, while Sezzle Anywhere allows users to generate virtual Visa cards for broader payment flexibility. However, consumer reviews suggest that these services are often added automatically during the checkout process, with minimal transparency or user consent.

Aggressive Debt Collection Practices

Sezzle has also faced criticism for its handling of missed payments. Unlike traditional lenders, which may offer grace periods or flexible repayment options, Sezzle reportedly takes a hardline approach. Customers have reported receiving threatening emails and calls shortly after missing a payment, with some even being sent to collections for small balances. These tactics have exacerbated the financial stress of already vulnerable users.

Hidden Fees and Poor Communication

Another recurring theme in customer complaints is the lack of transparency around fees. While Sezzle advertises its services as interest-free, late payments trigger significant penalties, often compounded by additional fees for failed transactions. Many users have expressed frustration at the lack of clear communication regarding these charges, leading to unexpected financial burdens.

Real-Life Stories: The Human Impact

Numerous customer reviews and complaints provide a sobering glimpse into the real-world consequences of Sezzle’s practices. One user on TrustPilot recounted being charged multiple subscription fees without consent, only to face a lengthy and frustrating process to obtain a refund. Another consumer described being harassed by debt collectors over a $20 missed payment, an experience they said caused significant emotional distress.

These stories highlight a recurring pattern: Sezzle’s pursuit of growth and revenue often comes at the expense of its most vulnerable customers. By prioritizing aggressive tactics and opaque practices, the company undermines its stated mission of “financial empowerment.”

Rouge Canadian Based Illegal Pharmaceutical Operation PlanetDrugsDirect

Sezzle and the Connection to Illegal Pharmaceutical PracticesAnother critical issue that highlights the risks associated with Sezzle’s operations is its involvement in processing payments for illegal online pharmaceutical companies. These Canadian-based pharmacies, often listed on the National Association of Boards of Pharmacy’s “Not Recommended List,” have been accused of violating U.S. regulations by selling prescription drugs without valid prescriptions and shipping unapproved medications into the United States.Websites like Canada Drugs Direct, Planet Drugs Direct, PharmStore, and others used Sezzle as a payment processor, enabling U.S. consumers to purchase prescription medications from these unregulated sources. Many of these companies have faced allegations of shipping counterfeit drugs, failing to deliver products, or providing medications sourced from countries with dubious manufacturing standards.

Screenshots Provided By Edwin Dorsey (Shoutout Edwin.)

Consumer complaints against these pharmacies often mirrored the broader concerns surrounding Sezzle. Issues included bait-and-switch practices, drugs arriving with expiration dates close to the purchase date, or shipments coming from unexpected locations like India or Mauritius.

One consumer noted, “I ordered a more expensive version of my medication from Australia and received a cheap version from India today.”

The Attempt to Cover Tracks

Starting in January 2025, many of these illegal pharmaceutical websites rushed to remove Sezzle as a payment option. This sudden change appears to be an attempt to obscure their prior reliance on Sezzle and distance themselves from the regulatory risks associated with the BNPL provider. However, historical records from internet archiving tools like Wayback Machine reveal that Sezzle was prominently featured on these sites’ checkout pages as recently as late 2024.By enabling these pharmacies to process payments, Sezzle exposed itself to significant regulatory and reputational risks. The company’s involvement in facilitating transactions for illegal operations underscores the ethical and legal challenges that BNPL (Buy Now, Pay Later) services face. As regulators continue to scrutinize the fintech sector, companies like Sezzle must ensure robust compliance frameworks to mitigate risks associated with enabling transactions for potentially unlawful activities. This incident highlights the importance of due diligence and proactive oversight in the fintech industry to prevent misuse of payment platforms and safeguard against facilitating illegal operations. Such breaches not only threaten regulatory penalties but also risk damaging the trust and reliability perceived by both consumers and legitimate business partners.

Merchant Exodus and Failed Partnerships

While Sezzle touts its growing merchant base, the reality is starkly different. Since 2021, the company’s active merchant count has plummeted by 51%, from 47,000 to just 23,000 in 2024. Even this figure appears inflated; a review of Sezzle’s website revealed only 6,776 merchants listed.Notable partnerships with high-profile merchants like Target, Lamps Plus, and Bellacor have quietly dissolved. Target, for example, initially integrated Sezzle into its checkout process in 2021 but has since removed it, favoring competitors like Affirm and PayPal.Sezzle’s inability to retain merchants underscores its declining relevance in a competitive market. Rivals like Affirm, Afterpay, and Klarna continue to grow their merchant networks, leaving Sezzle in the dust.

A Troubled History: Lessons from Australia

Before its NASDAQ debut, Sezzle listed on the Australian Securities Exchange (ASX) in 2019. The company’s tenure in Australia was marked by allegations of high-risk lending, promotional exaggerations, and withholding negative information from shareholders. By 2022, the stock had collapsed by over 80%, and Sezzle narrowly avoided bankruptcy after a failed merger with competitor Zip.This troubled history raises concerns about the company’s ability to adapt and survive in the highly competitive U.S. market.

Sezzle September 2024 Proxy Page 42

Insider Actions: Pledging Shares and Cashing Out

Perhaps the most damning evidence of Sezzle’s instability comes from its own executives. CEO Charlie Youakim has pledged $542 million worth of shares — 30% of the company’s total — as collateral for a margin loan. Insiders have also sold $71 million in stock in 2024, with one key investor reducing their stake by 87%.These actions suggest a lack of confidence among leadership and raise questions about the company’s future.

The Regulatory Landscape: Sezzle Under Scrutiny

The BNPL industry is facing increased regulatory oversight as concerns mount about its impact on financially vulnerable consumers. Sezzle’s reliance on subprime borrowers and its opaque financial practices make it a prime target for regulators. Historical precedents, such as Google’s $500 million settlement for advertising illegal pharmacies, highlight the potential financial and reputational risks Sezzle faces.

Conclusion: A House of Cards?

Sezzle’s meteoric rise in the BNPL sector has been built on a foundation of risky lending, consumer exploitation, and aggressive financial maneuvers. While the company touts its mission of financial inclusion, the reality is far less noble. From losing merchants and customers to insider cash-outs and regulatory risks, Sezzle’s future looks increasingly precarious.For investors, consumers, and merchants, the story of Sezzle serves as a cautionary tale. The company’s short-term gains may ultimately come at a long-term cost to all stakeholders. As the BNPL market continues to evolve, Sezzle’s survival will depend on its ability to address these systemic issues and rebuild trust.*

At the time of writing $SEZL is trading at $229.76

*Disclosure: This article is based on extensive research and publicly available information. Readers are encouraged to conduct their own due diligence before making any financial decisions.