I’m starting to wonder if they realised mid-last year that funding would be a challenge, < what evidence is there that IOUpay will be able to benefit or use it ..
Just because IOUpay have a non-controlling ownership of IDSB does not mean they can magically repurpose the AG Code for their own operations
The evidence is - they'll own part of the company and be entitled to profits. The benefit is as an income stream and the ability to use the service at a lower price. IDSB sets the fee structure, do they not? It makes little sense to charge myIOU a full fee for the use of the service, only to give them a proportion of it back later. Even if they have to pay full price at point of transaction, they're going to get some of it back. Same thing as a discount.
Additionally gives them a very nice positive marketing spin. AG code was set up as a way to do "responsible lending", in that it limits how much finance a person can have. Coming off the back of a government led credit moratorium, and all of the surrounding rhetoric on eg predatory lending, to be able to say that they offer interest free credit facilities with much the same level of utility as a credit card looks pretty good.
I don't speak Malay and so I may well be wrong. but a brief search seems to suggest that, while you can get interest free or low interest cash loans in Malaysia, these things aren't really meant to apply to consumer goods. Thus if you're in Malaysia and have a shopping addiction, it's going on a credit card. So the marketing in effect ends up like, "NEW OUT OF YOUR PAY PACKET.. Interest free credit card".
<, I think I’ve made my points already.
I agree with you on the fundamentals of your points.. but only in terms of how they're managing the BNPL portion of the business. As I have mentioned above, IOU isn't a BNPL business, they're a digital banking fee taking business. BNPL is a part of how they attract customers into digital banking. It's a marketing tool, not the core business, you see?
<I’m starting to wonder if they realised mid-last year that funding would be a challenge
If it was a strict BNPL business I would agree with all of your points. They're definite facts and would be a problem entirely if, again, they were a business whose sole focus was a profitable BNPL.
We all know that is impossible. If you have even a 2 month loan term, at 5-6% loan yield on fees you rely on volume to make money. This then incentivises you to loosen credit criteria, and, with such low yield, that inevitable increase in bad debt destroys you. See : Zip. Lol.
< how you can still view this acquisition as value-accretive for shareholders
They gain a database of low risk customers with bonus access to revenue from fees.
Additionally, IDSB has friends in other sectors of the banking industry. At the very least, they can get information, if not actual advantage. They also gain access to talented people. They're buying into the club, so to speak. Others have mentioned that Malaysia is somewhat of a "boys club" in terms of how most of its industries run. IDSB acquisition is them getting some skin in the game.
As I have said, I don't see this as BNPL, the point of the business is marketing a digital economy to the cash preferring Malaysians.
Anyone with half a brain can make an argument that the "responsible lending" of the AG code , being a max of 60% of someone's income going to finance, is a huge burden on someone's personal finances and something to be avoided. Think how much interest these people must be paying!
And that it is, from what I understand, very common for people in Malaysia to max this limit out, would make the idea of "having credit" distasteful. And this association would additionally apply to digital payments.
I can remember having conversations with people who thought that using EFTPOS was distasteful. They would only use their card to withdraw cash from the ATM and then use that to pay for things. I mean, what's the difference, really? But it's the way people felt about it, since they came from an era where using the card to pay meant paying with credit.
Again, let me hammer this point home - 78% of Malaysia's transactions are cash. And yet somewhere in the vicinity of 75-80% of people have a smartphone.
BNPL is risky from a credit perspective but it also has great marketing value - "its interest free". Take away the stigma of credit, then take away the stigma of digital payments, then you have access to ALL of those fees.
So, from that perspective, it's good that there is such high demand for BNPL that they've run out of money. It means the demand for the product is there, that their assumptions about the credit market are correct. The reflection on the business is "the marketing plan is correct and we're selling".
If they were a BNPL business, yes, fail. They're not! Merchant payments are practically speaking part of their marketing budget, and they get that money back plus some on to top within 6 months.
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