For those who has expressed the concern about increased Bad...

For those who has expressed the concern about increased Bad Debts %. Please read what the co-founder comments .

A drop in monthly arrears should soothe any market unease related to Zip Co's disclosure of an increase in bad debts, according to co-founder Peter Gray, who is confident the buy now, pay later player is on the right track ahead of a transformational merger.

For the June quarter, bad debts hit 2.24 per cent of total transaction value, versus 1.84 per cent in the previous quarter.

"Prior to COVID we disclosed to the market our bad debts were too low for our business model," said Mr Gray. "We took the view we could adopt slightly more appetite with regard to growth without it coming at the expense of the commercial bottom line and guided the market to a more appropriate bad debt number for our business closer to 2.5 per cent."

Mr Gray said monthly arrears, as a forward indicator of bad debts, are a better indicator of how Zip's financial 2020 profit and loss statement is shaping up.

"We've seen our arrears decrease over the period, which is an outstanding result in the current climate. Certainly not behaviour demonstrated with credit card receivables, or mortgages.

"Arrears is a current reflection of our risk appetite in a more recent environment, so the last three months is a reasonable window on that."