Afterpay rival Zip tightens lending as bad debts climb

Zip Co has said it will be more conservative in its lending and will slash $30 million in costs, as the plunge in buy now, pay later (BNPL) share prices ramps up pressure on loss-making operators to show they can make profits.

Following a period of intense competition among BNPL providers, the Sydney-based fintech on Thursday said bad debts had increased to outside its target range, a similar trend seen at rival Afterpay earlier this month.

The total value of transactions on its platform rose 26 per cent year-on-year, but UBS analysts said this was below market expectations, as Zip reaffirmed its plans to generate profits earlier than previously expected.

Zip, a key local rival to Afterpay, provides short-term instalment loans in Australia, the US and markets around the world. It is trying to disrupt the global credit card market, which is dominated by banks.

While BNPL firms were among the most-hyped stocks on the stockmarket in early 2021, their share prices have collapsed since the second half of last year, as investors fret over the impact of rising interest rates on technology companies’ valuations, stiff competition and rising bad debts.

Zip shares fell 4.6 per cent to $1.15 on Thursday and so far this year have fallen by about 70 per cent.

Zip co-founder and chief executive Larry Diamond reiterated the company was aiming to accelerate its path to making a profit – something it has previously said it hopes to achieve by 2024 on the basis of earnings before tax, depreciation and amortisation (EBTDA).

“In the half year results we acknowledged a change in external factors and announced several adjustments to our strategy – with a refined focus on sustainable growth, strong unit economics and fast tracking profitability,” Diamond said.

“The quarter saw us continue to deliver top line growth and strong revenue margins, while beginning to implement this refreshed strategy.”