As a holder of APT and Z1P I thought I'd give this topic some...

As a holder of APT and Z1P I thought I'd give this topic some attention as it does seem to pop up every once in a while, especially in the Z1P forums as a reason why APT is considered so risky. To someone in credit, the difference is just a difference in strategy with both having pros and cons.

Z1P - credit checks examined
Z1P does a credit check on it's customers and once approved it gives a credit limit of $1000. As time passes and the customer starts using the product, the behavioural quant models take over, and increases the limits if the credit customer is deemed of good quality. Over time, the initial credit check becomes somewhat redundant since the quant models are considered much more effective in discriminating between credit quality. This is very similar to banking where loans are made through an application score card (including credit checks) and over time more and more weight is being put on the behavioral quant models and the application score is phased out. Due to the nature of BNPL loans (low value, high frequency) I'd imagine the models are able to get data much quicker than banks. In my opinion the credit checks are much more important for Zipmoney than Zippay due to the higher limits and to reduce their credit risk.

APT - no credit checks examined
Afterpay does it slightly differently. They skip the application scorecard/credit check process and instead gives customers a smaller limit, of $400. This means that initially APT has a higher credit risk, but also a lower exposure. In ways you could say that they offset each other: Z1P -> credit checks but higher exposure, Afterpay -> no credit checks but lower exposure. Then, like Z1P they rely on they quant models to increase higher quality customers limits as time passes and the quant models get more behavioural data.

12 months later
What is important to note is that once the quantitative models are fully activated for both Afterpay and Zippay, there is no difference in whether there were credit checks done at the start or not (this is specific to Zippay, credit checks are important for Zipmoney but is not part of this comparison since APT doesn't have a comparable product). So these are simply two different strategies that seem to work for both companies.

You could argue that at the initial phase, Afterpay has slightly higher risk but given the smaller exposures they seem to be managing that risk very well. The big difference between the two is that Afterpay makes it easier for customers to use the service and is one of the main reasons (other than first moved advantage) why their growth has been much faster than Z1P.

I'm not down or upramping either company, I just want to highlight that both companies have two different strategies. Afterpay not doing credit checks, and Z1P doing them are calculated decisions that seem to be working for both.

Equally important to note is that Z1P can switch to the Afterpay strategy and Afterpay could switch to the Z1P strategy without too many issues if either parties wanted to. Will be posting this on both forums.