ZIP TO BOUNCE!!!!, page-64

Hi,

sorry for the late reply. i will try keep the following as basic as possible for the example to show

-how different offerings affect revenue,
-how interest rate increases will disadvantage some bnpl more than others


first up the difference in offers from bnpl can affect how much revenue is earned from its loan book and also when that revenue is received.

so would it be better to earn 30% on a 12 months bnpl contract (ie some of affirm contracts) or 4% on the 4 payments plan (ie afterpay) *note afterpay turns over its loan book 15 time per annum.

simplified example, each loan to the value $1000

affirm will earn 30% over 12 months = $300

afterpay earns 4% × 15 = 60% ($600)

important part here is the number of times the loan book is turned over (the pay in 4 model is one of the most efficient when it comes to a higher turnover rate. i think the most efficient possible for pay in 4 is 17.33 times PA) zip aus has a lower turnover rate (i think around 6x, but its monthly account fee helps to offset the difference,,, substantially imo) finding the right balance and keeping customers happy is the main reason for differing bnpl offerings. some users want bnpl because its free and promotes more responsible spending/payments (ie apt) some want more flexibility and willing to pay a fee (ie zip au).

keep in mind the above example does not account for affirm users payments that can be loaned out again during the initial loan period.

next point about the difference in the above example that revenue from the pay in 4 model is earned much quicker whist longer term loans revenue for those sales may not be reflected for some time into the future. In affirms case its recent report showed a disportunate increase of sales compared to revenue earned, thats because sales on longer contracts wont collect the revenue till much later (just a delay that as the company matures will eventually even out) zip au also has this to a degree.

obviously there are more complexities but this simplified example should give a basic idea.


next is increasing interest rates

once again the main factor is how often the loan book is turned over. so for this example ill ignore all costs except interest on loan book. and all things being equal except turnover rates

lets say zip au and apt both have a loan book ($1000) and pay 2% interest p.a. and both earn 4% merchant fee for each sale, apt turn over book at 15× and zip at 6×
and the we will show the difference when interest increases to 3%

apt will make 4% x 15 = $600
zip will make 4% x 6 = $240

at 2% interest each will owe $20 which is

apt 3.3% of revenue (20/600)
zip 8.3% of revenue (20/240)

at 3% interest each will owe $30 which is

apt 5% of revenue --- an increase of 1.7%
zip 12.5% of revenure --- an increase of 4.2%

the change to the bottom line due to interest rates can be easily seen.

this example simple shows higher interest rates affect different bnpl offerings differently. it does not account for zips monthly fee which improve zips position from the above example as this is part of thier higher margins.
you can reproduce the above example changing the margins and still see lower turnover rates are still disadvantage more.

again pinch of salt, its much more complex and many other factors to take into account

dyor, all imo,