No worries
I've outlined the way I look at things below - please let me know your thoughts as I'd be interested to see if I have gone wrong somewhere.
Zip has approx 10 million customers as at 31st December 2021.
TTV was approx 4.5 billion for H1 2022.
Revenue was approx $300 million for H1 2022.
Bad debts were approx $150 million for H1 2022.
So let's imagine for a moment that Zip decided to stop growing completely.
What percentage of those 10 million customers do you think are responsible for the bad debts?
For the purposes of our discussion, let's just say 500,000 customers are responsible for the bad debts.
My understanding is that once a customer misses a payment their account is essentially suspended until the payments have been made.
So 500,000 customers would essentially have their accounts frozen and no longer able to transact.
So moving forward you would have 9.5 million customers that continue to use their accounts and transact as per usual, and you have virtually eliminated all bad debts by removing the 500,000 customer accounts that were responsible for those bad debts. Now naturally some of those remaining 9.5 million customers might also be unable to pay their debts etc but it would be a significantly smaller amount given they have an established track record of making payments on time etc.
And those 9.5 million good quality customers are the backbone of your business, and while there might be a slight drop in transaction value due to the 500,000 bad customers being removed, the significant drop in bad debts would be more than sufficient compensation.
So as far as I can see, if Zip decided to stop growing right now the bad debts would almost immediately come under control, and I believe they would become profitable virtually immediately.
However, they are happy to accept a significant rise in bad debts in the short term to ensure their overall customer base is increasing rapidly - and then once you have an extremely large customer base (e.g. 20 million, 50 million etc), and you have closed all the bad accounts along the way, you will be left with a large customer base with a very good standard of customer (ability to repay debts etc).
(20min delay)