Summary
- ASIC released its report on the “buy now and pay later” industry, welcomed by Afterpay and Zip.
- The total credit provided to the industry has doubled in the last 12 months, and financial transactions have increased from 16.8 million in the FY17-18 to 32.0 million in FY18-19.
- Zip’s proprietary credit decision capability helped to lower the late payment cases to 1 in a 100, compared to the industry’s data of 1 in 5.
- Afterpay accounts for a massive 73% of the total value of BNPL transactions at the same time also has a relatively smaller proportion, i.e. 27% of industry consumer’s debt.
- Afterpay built-in consumer protection mechanism ensures a lower transaction value of average $147 vs up to over $8,000 of the industry transaction value.
- Zip has delivered at 69% YTD return while After pay has delivered a 230% return during the same
On 16th November 2020, ASIC (Australian Securities & Investments Commission) released its latest data on the “buy now and pay later” industry. In the last 12 months, the total amount of credit extended to the industry has doubled. The financial transactions have increased from 16.8 million in the FY17-18 to 32.0 million in FY18-19.
The research also reveals that one in five consumers are missing payments, and a total of over $43 million has been accounted towards missed payment fee revenue in the FY18-19, which is a growth of 38% over the previous financial year. The industry is also focusing on developing a code of conduct and would be going through more regulatory changes further down the road.
Two significant players from the industry, Afterpay Limited (ASX: APT) and Zip Co Limited (ASX: Z1P) have welcomed the report as both of them had participated in the report’s preparation and providing the data.
Zip’s robust business model translates to only 1 in 100 customers making delayed payments.
The management is happy with the industry growth primarily due to broken and old age credit card model. The customers now prefer interest free alternatives with the outstanding balances to be paid in months and not in years.
The ASIC’s report reflected various business models being adopted in the country, many of which have a reliance on the late fee to handle the economics of the business work. However, Zip’ proprietary credit decision capability performs identity checks on every single applicant, which helps to access an individual's financial circumstances.
This has translated to only 1 in 100 Zip Pay customers are late each month, massively below the industry data of 1 in 5 customers, making a late fee. Zip also makes less than 1% revenue from the late fee, which is also amongst the lowest of all players.
Also Read: Zip Co (ASX:Z1P) Reports 88% Growth in the September Quarter
Afterpay’s business model relies on lower transaction values and short-dated payments.
According to ASIC, Afterpay accounts for a massive 73% of the total value of BNPL transactions, however, has a relatively smaller proportion, i.e. 27% of the industry’s consumer debt.
Relying on its robust built-in consumer protection mechanism ensures an average transaction value to remain $147 vs up to over $8,000 of the industry transaction value. Lower transaction values help to reduce the late payments and accelerate the short-dated payments. The company generates 6-8 weeks of short-dated payment vs over 60 months of the industry’s time.
Afterpay does not rely on customers to drive revenue growth by revolving them in large or accumulating amounts of debt. It strictly suspends them after they miss their single instalment payment. Over 90% of all its transactions is linked to Debit cards and generated over 85% of its revenue from the merchants in FY20.
Also Read: Afterpay Limited Reports Strong Performance Across All Regions in Q1 FY2021
Stock Performance
The share price of Afterpay is trading almost flat at $101.4, down by a mere 0.4% decline (as at AEDT 1:23 PM). The stock has been one of the best performers in BNPL space since the initial shock of the pandemic and has delivered more than 230% YTD return and a whopping 1100% return from the March low of $8.01.
Zip’s share price is down by 0.83% in today's session, trading at $6 per share (as at AEDT 1:23 PM). The stock has been moving in a range of $6.52 - $5.83 for the month. The YTD return stands at 69% while much better 470% return has been delivered since March low.
