Zip targets ‘underserved’ Americans after profit bounce
The group, which has booked $30.8m in cash earnings for the six months to December 31 from a $33.2m loss a year earlier, said it was looking to build its business by growing lending lines in already performing markets.
Zip said it had peeled off poor customers who were at risk of bad debts but was looking to grow on the back of new products.
Already, Zip said its American business was benefiting from the rollout of a branded card option, while in Australia the Zip Plus, its lending option was expected to be “yield accretive” alongside a push into funding dental procedures through private health insurer HBF.
Chief executive Cynthia Scott said the lender was “demonstrating consistent strong performance and continued successful execution of our strategic priorities”.
Ms Scott said Zip had benefited from a lift in its American business, noting “much of this growth was driven by increased engagement with existing customers while maintaining strong credit performance”.
Zip also flagged plans to extend distribution and performance of its core products in the year ahead, as well as noting plans to unlock new customer and market segments for growth.
Ms Scott said Zip was targeting customers who lacked access to traditional credit products in the US, noting new migrants or those with low FICO scores offered a potential 100 million new customers.
“Our strategy is really to look for those customers with thorough credit decisioning. We can identify it, we bring them onto the platform,” she said.
Ms Scott said Zip was also seeking to target new customers in Australia, noting many younger customers were attracted to its platform rather than a traditional credit card.
“The common thread across both markets and both of these customers is that these are consumers who are looking for ways to responsibly manage their finances and to budget responsibly,” she said.
Zip said active customers on its products fell by 2.5 per cent in the six months to December 31, a peak period for the lender, but this came as transactions per customer lifted 30 per cent.
Total transaction volume lifted 9.6 per cent on levels recorded in the first half of 2023 to $5bn.
Net bad debts held steady as a percentage of total transaction volumes, at 1.9 per cent.
Zip, the Australian-founded lender, is now focused on America as its future, with the market delivering $4m more in revenue than Australia.
Co-founder Larry Diamond relocated to America in October 2022, to lead operations there, after Zip took over New York-based lender QuadPay in a $403m scrip deal.
Ms Scott said Zip was “firmly focused on our three strategic pillars for FY24 – driving sustainable profitable growth, product innovation and operational excellence”.
“Zip is very well-positioned to capitalise on the near and medium term opportunities in our core markets of ANZ and the Americas and deliver greater value for our customers and merchants,” she said.
Ms Scott said Zip was also considering how to deploy the growing profits within the business, but noted no decisions had been made as to whether to engage in a share buyback or dividend or to further invest in the lender.
The turnaround at Zip comes after the market questioned the survival of the lender after its aborted deal to merge with buy now pay later lender Sezzle amid a surge in interest rates.
Zip had made several international expansions, which saw the lender pour cash into the operations.
Operations in Mexico, Singapore and the United Kingdom have now all been shuttered, while Zip also sold its businesses in the Czech Republic, Poland, Saudi Arabia, South Africa and the United Arab Emirates.
Zip also moved to close its business lending operation in Australia, as the lender entered a cash conservation mode.
The lender has moved to ratchet up its margin, which lifted 130 basis points in the half to 8.5 per cent, despite a surge in borrowing costs.
Zip said its interest costs topped $101m in the half, up on the $67.6m reported last year.
Citi analyst Siraj Ahmed said Zip had exceeded earnings forecasts, but costs were tracking well above expectations.
Shares in Zip sank on the news, closing down 14.44 per cent or 13c to 80c.
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