Credit Intelligence debt restructuring and BNPL platforms provide a secure ecosystem which underlines the company’s value proposition.

The BNPL sector has had a tough time of it lately after falling from its peaks in 2021.

Zip Co saw its share price sink by 80% in one year, while Block Inc is down 50% in the past year before bouncing back strongly just in the last month.

Both companies have been struggling with increasing bad debts, and some experts say that using BNPL services could lead to a debt trap for active users.

Despite the apparent issues, the sector is still in its adolescence, with many countries throughout Asia yet to experience the explosive BNPL lift-off in consumer purchasing behaviour.

ASX-listed Credit Intelligence (ASX:CI1) is one company that could benefit from the adoption of BNPL across large and wealthy Asian cities like Hong Kong, which is poised to follow the trend in Australia and other western nations.


CI1’s two-pronged approach to BNPL

BNPL typically divides the purchase into four or six repayments. The first payment is due at checkout, and the rest are usually due monthly.

But if they fall behind on the later payments, it can hurt their credit rating and in the worst case, could put them into a default situation.

And this is exactly what we’re seeing now, with companies like Afterpay and Zip racking up huge levels of bad debt resulting from non-payment by consumers.

CI1 CEO Jimmie Wong says to mitigate this fundamental flaw in the business model, the successful BNPL operation needs a strategy to both:

  1. safely issue credit to consumers; and
  2. successfully restructure bad consumer debts so that they can still be paid back

“A two-pronged strategy is a core part of issuing BNPL debt to consumers,” Wong said.

“You need a strategy to safely issue credit to consumers in the first instance to avoid large percentages of bad debts amassing to the business.

“For those consumers who still get into trouble with repayments, you need a second strategy to successfully restructure their consumer debt, providing them with the right options so that their debts can still be paid back.”

This two-pronged approach to issuing credit significantly reduces the risk on the business side, and greatly benefits the consumers as they are able to avoid a bad credit rating.

It also enables the BNPL business to  retain more of their customers instead of having to put a stop on their BNPL purchasing, according to Wong.


Rising rates could benefit CI1

The rising rate cycle which were currently in could also hurt borrowers.

As mortgages go up, it could lead to stress on other unsecured facilities people may have such as credit cards, personal loans, and BNPL.

Chris Mushan, managing director of Chapter Two which is an Australian subsidiary of CI1, says the imminent rise in rates could cause a trickle down effect that could benefit a company like Chapter Two.

“Given Australia’s love for property and the importance of owning property, the mortgage always comes first for Aussies,” Mushan told Stockhead.

”So when there is a push in the household budget, those credit cards, personal loans and BNPL repayments get knocked off from the list.

“They stop paying them and that’s where Chapter Two starts seeing a lot of our inquiries come through,” he said.

Chapter Two is a debt restructuring firm that provides informal debt negotiation and mortgage broking services to individuals experiencing financial hardship in Australia.

The company has just launched its  new Debt Management app, which has the ability to list all of its clients’ debts in one place, removing the need for multiple internet banking accounts and direct debits.

Mushan said that most of his clients would use at least one, if not more BNPL platforms.

“BNPL is a massive issue for clients for sure. People think it’s free money, but what they may not realise is that money will have to be paid back, on top of their mortgages and other payments.”


The Credit Intelligence ecosystem

Outside of Australia, Credit Intelligence’s operations in Singapore and Hong Kong could also help people in debt distress.

The company has a long history of experience in personal lending, including its successful Singaporean businesses Hup Hoe Credit (HHC), and ICS Funding.

In Hong Kong, it’s the largest insolvency and debt restructuring service provider to all major banks.

For CEO Wong, managing credit risk is a skill he has mastered over many years from operating that business in Hong Kong.

“My experience in personal debt restructuring and as a trustee in managing insolvencies for all major banks in Hong Kong over many years has allowed me enormous insight into how consumers and corporations can get into trouble with using credit,” Wong said.

“My understanding of both sides of the equation, being the risk on the creditors side and how to issue credit safely to consumers to avoid non-payment, as well as being an expert on how to effectively restructure personal debts for people who do struggle to make their required payments is key.

“Managing these two areas proficiently is a core component towards continuing to build a profitable BNPL operation.”


Room to grow

Credit Intelligence’s own BNPL businesses currently focus on the SME market, and include the OneFlexi app in Hong Kong and the YOZO platform in Australia.

The OneFlexi app currently serves over 20,000 SMEs in Hong Kong, allowing them to settle on-demand corporate and utility bills by instalments.

Meanwhile, the YOZO platform is a product of collaboration with the University of Technology Sydney (UTS), and utilises machine learning to help Australian small businesses manage payments and improve their cash flow.

Mushan says Chapter Two is getting cross-referral business from the YOZO platform.

“If a small business had a $50,000 debt on YOZO and upon review they found that the business is struggling to make that payment, they could refer the director to Chapter Two, enabling us to complete a closed loop business within the Credit Intelligence ecosystem,” Mushan said.

This article was developed in collaboration with Credit Intelligence, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.