Zip lowers on lending to tradies

The Australian loans company Zip is cutting back on some of its lending as part of a strategy to return to profitability.

The ASX-listed company has operations in 14 countries including New Zealand, but has been hit by big losses and a falling share price.

So it is cutting back on its buy-now-pay-later (BNPL) schemes for small and medium sized businesses (SMEs).  As part of this process, two products for the trade sector, Trade and Trade Plus, are being withdrawn. The company stresses its consumer lending is not affected, nor is its capital lending.

In a statement, the company said its operating environment had changed significantly in the last few months.

It said it wanted to focus on the factors it could control, and accelerate its path to global profitability.

It is understood the factors beyond its control were not Covid-19, but volatile interest rates and the risk of declining economic growth and low consumer confidence which undermine the outlook for the trade sector.

As a result, it was withdrawing its Trade and its Trade Plus products, which were part of its Zip Business lending operation.

The development followed several unfortunate trends for Zip.

Its share price has fallen from $A1.30 in April to $A0.50 this week.

Its latest half-year report showed the company made a loss before tax, depreciation, amortisation and share-based payments of $A157.6 million, excluding non recurring items.

Despite these figures, Zip made a series of optimistic statements to the ASX and elsewhere, stressing revenue growth and the short term impact of one-off costs like acquisitions and re-branding.

The company said its decision to end the two BNPL schemes had nothing to do with recent controversy in the media about the whole principle of BNPL.

This included a much-reported story of a liquor store owner who was accused of using BNPL to supply booze to his customers, which risked causing obvious social problems.

Zip had nothing to do with that issue, and  insists it is a responsible lender, adding that BNPL is far more transparent than traditional rivals such as credit cards or hire purchase deals.

Buy-now-pay-later schemes have been growing in popularity as a means for people to make urgent purchases and delay payment for them. They typically rely on interest payments or a monthly membership fee for funding, and offer various waivers, interest holidays and cash backs as incentives.

Peak interest rates can be very high – 21% - and the Government is considering what to do about BNPL after the negative media coverage.

A report by the Ministry of Business Innovation and Employment (MBIE) found there were almost 600,000 people using BNPL, while the value of the average transaction was quite low: $210.
The MBIE findings are under consideration by the Government.

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