The Zip Co Ltd (ASX: Z1P) share price went down this morning after the release of ASIC’s report.
What happened?
Zip said in an ASX release that it welcomed the ASIC report into the buy now, pay later (BNPL) sector. The business provided several rounds of internal data to ASIC.
Zip pointed out that the report confirmed that there are different BNPL providers in Australia with different business models and different ways of engaging with consumers. Many of those models rely on late fees to make the economics work. The company boasted that it’s different to these business models.
How is Zip different?
The company said it has invested significantly in its credit decision capabilities, which is delivering better outcomes when compared to peers or credit cards. It has performed credit and identity checks on every single applicant since inception, and where customers connect their bank account, it can assess an individual’s circumstances to understand all of the financial commitments.
Only 1 in 100 Zip Pay customers are late each month, compared to the data that shows that 20% of customers across the broader BNPL industry have missed a payment. Zip makes less than 1% of its revenue from late fees – it doesn’t need consumers falling behind to make money.
Zip co-founder and chief operating officer Peter Gray said: “Our industry is developing a code of practice which we believe will lift industry standards. Zip has been a key player in developing this code and ASIC’s report will inform the code’s further development.
“However, while we believe the code is a very good start, Zip will continue to implement its own higher standards, particularly around customer suitability. This is inline with our values of transparency and responsibility, which continues to deliver superior consumer outcomes.”
Is this a buying opportunity?
In the past I have preferred Zip to Afterpay. The minimal amount of late fees is an attractive factor. But it’s hard to estimate how profitable Zip (and others) can be in the future. Will they all have good market share? Will merchant margins be maintained? Zip could be one of the few global winners, but I’m not sure.
There are a few other ASX growth shares from the payment space I’d rather buy first such as Pushpay Holdings Ltd (ASX: PPH) and EML Payments Ltd (ASX: EML).
