Hey James, (all in my opinion)
Im going to assume the revenue conversion you speak of includes all revenue (including - account keeping fees, establishment fees,
interest @ 19.9%, late fees, convenience fees, zip biz part pay fees, and dishonour fees (not sure if I missed any) from various zip products.
I prefer to only use revenue conversion for the revenue made from merchants for the actual sale of goods or service for 2 reasons.
1) The revenue from the sale is guaranteed and set as per contract either with the merchant or in zips case visa, unlike the revenue made direct from the customer relied upon those customers paying those fees. Some are one off like establishment fees, some are dependent on customers not paying early enough to have fees waived like account keeping fees and interest @ 19.9%. Some are dependant on the size of the purchases to begin with like zip biz part pay. Quad has its own convivence fee which I will mention later. (whilst average fee revenue per user assumptions can be made, BNPL is seen as a consumer friendly product and should be trying to reduce the unfriendly fees to the customer) otherwise what is the benefit to a customer if they are paying similar or in some cases much higher fees than opting for a CC.
2) The cost of such fees to the customer will impact the experience to the users future use of a product, which is actually the basis of BNPL being seen as a disrupter to the broken credit card model. The shift away from CC in my opinion is mostly a cost factor to the customer. CC in themselves are not seeing a decline due to ability to use either physical or digital. The BNPL sector is heavily promoting itself as a no fees and or no interest consumer friendly product.
If you take out the revenue generated from the customer the conversion from ttv comes crashing down.(The last I has seen noted approx 61% of zips total revenue came from the customer and only approx 38% from the merchant) although Peter Gray said they don't rely on late fees for its revenue, they sure do rely on all the other fees. Think about it 61% is huge, and I suspect this will be increasing with the addition of quadpay. (As a comparison APT revenue from the customer as per last ann is less than 9%)
Out of interest try calculating the average cost of service to the customer, last time I did zip was over 500% more expensive on average.
ZIP ( 61% of revenue / number of customers )
APT ( 9% of revenue / number of customers )
Moving on, you said you traded APT from under 100 to 150, That's great! 50% profit is nothing to sneeze at. All investors/traders have their own strategies and reasons for buying and selling. If the goal was to make 50% or less then that's a successful trade. Well done
On the regulation side of things, I agree with APT being the most exposed to changes. With the two previous ASIC reviews and "chatter" I don't think we will see any regulation introduced with the aim of providing a detrimental impact to the bnpl industry. So far the leaders in bnpl have showen the benefits of providing such services far out weigh the costs, should that change you can bet ZIP and APT founders will work alongside regulators like they have to date to come out with viable outcomes for mutual benefits. (the media focus of late fees for apt has gone quiet I suspect due to its continued reduction)
As for the ability for merchants to pass on fees, I actually think its highly likely to happen. Sooner the better in my opinion so we can move on from the topic. Merchants are not forced to join bnpl and if they don't see a benefit then simply get rid of it. bnpl wont be of value to every business and I dont think anyone believes that it is. As for the business that have opted in and stay with bnpl are finding it of value. Looking at the ability of merchants to pass on CC fees, its only a small minority of business that actually do. I feel the topic is overblown. Also whist APT may see higher fees passed on zip users will also have to bear in mind the fees passed by integrated merchants may be lower but are on top of any account keeping fees (should they actually use the pay later aspect of bnpl). Im sure many users will counter saying I use zip and never pay a fee, in turn can be countered with if your paying early enough to avoid the monthly fee then your not using the pay later aspect. round and round it goes.
I agree APT is heavily reliant on merchant fees and will have to continue to maintain value for its customer (that being a fee free service) and value for the merchant (increase sales, basket sizes, and a reduction in abandoned orders) So far they are maintaining and even improving this. If this changes for the worse I will reevaluate my investment. As should be done with any investment.
I also agree about ZIP shifty customer fee set up. A CC annual fee broken down to zip monthly fee very much the same thing. Some advantages with zip is if the service is not used you don't pay unlike the CC (APT never pay either way) Psychology on the fee at $6 is nothing new but always a good tactic to employ (like regular shops pricing something at $9.99 rather than $10) What does get me though is if you use zip for the buy now and pay later aspect you will incur $72 in account keeping fees over a year, and again psychologically not all that much if compared to a CC in dollar value, but if you weigh up the "cost of credit'' (ie $72 / 1500 (credit limit)) is 4.8 cents per dollar of credit, compared to a CC say mine as example I pay $99 for 33K limit equates to 0.3 cents per dollar of credit. (the cost of credit for zip is 16X more than a CC (in my case) and APT is free)
No argument that if zip can get its customers spending more they will see the SP increase at higher %. But how much more is the question. lets assume the fees stay relatively static (leaving out quadpay for the moment) as establishment fees, account keeping fees wont rise inline with increased spend as the fees are the same regardless (of course some increase will be seen) so assuming zip can close the gap (anz zip users spent average $611 vs APT $1411) so in closing the gap, but regarding zip being used everywhere and only recieving a % of the transaction fee at non integrated merchants will mean the could match the spend of $1411 of APT but will be making significantly less in revenue conversion from the increase in ttv. How much do zip users have to spend to have the revenue conversion = that of what APT make on the $800 more spent than zip users. Would average spend of $2000 be enough? Probably not. In my opinion it would be closer to $3000 or higher. (This is my opinion only as no metrics of what % zip earns from transaction fees at non integrated merchants and what % of ttv comes from non integrated merchants)
I can safely say an increase in spend per customer would reduce the % of revenue earned from the customer though (excluding quadpay)
And then there is quad pay, an excellent strategy for zip to gain quick access to the US market. whilst some say APT is a vanilla pay in 4 product I believe quadpay to be zips bread and butter at the moment and its simply a pay in 4 product also. But the cost is horrendous. Whist in the short term getting quick easy access for a product (like the recent game console via gamestop) was a great partnership. Quad is also able to be used anywhere but if the merchant is not integrated it will cost the user $4 for each purchases. In my opinion this is not viable long term. zip might skate through with up to $72 in account fees per year, but that is only 18 transactions for a quad user. How long before the negativity starts spreading about how much users pay in fees over a whole year?? guess we will see in a years time. However I do believe zip have plenty of room to make changes and possibly move quad to something more like ZIP. I'd personally like to see that happen and would possible increase my holding.
Also to note with the recent inclusion of quad into zip and the high $4 fee per transaction at non integrated merchants I strongly believe the % of revenue made from the customer will have shot up from the already 61%, which also reflects negatively in the long run. The focus on bnpl and the amount of "late fees" paid has been focused towards APT to date but with APT reducing this from 24% a few years ago to now less than 9% there may be a shift towards the overall cost to consumers rather than a focus on just late fees. Since no other significant fees are applied to APT customers such a shift will be huge negative for ZIP. As Peter said zip does not rely on late fees. but the sure do rely on fees from the customer. Is this a real shift away from the broken CC model??
Anyhow for full disclosure
I hold both zip and apt. the space is changing rapidly but I believe both will have great futures ahead of them. Things will change and evolve but hey nothing new there.
GL to all holders
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