Zip co-founder Peter Gray says he expects smaller buy now, pay later companies will bite the dust amid the coronavirus shutdowns
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A challenging global economy will separate the wheat from the chaff, with some anticipating the buzzy buy now, pay later (BNPL) sector to be one barometer.
Zip Co (ASX:Z1P), which boasts nearly 2 million Australian users or around 30 per cent of the local market, expects it’ll be the strong that survive.
“Historically, if you look at what plays out in a downturn or a significant change of economic conditions is typically the strongest one or the one or two larger guys will typically get stronger and stronger, while some of the smaller guys will struggle,” co-founder Peter Gray told Business Insider Australia.
“In this situation that might be accelerated for some of the challengers who have no real form of product differentiation.”
That would put Afterpay (ASX:APT), which lays claim to around 3.1 million Australian users, and Zip in the box seat, according to Gray, with the two enjoying the lion’s share of customers and transactions.
“Most of the challengers are going head to head with Afterpay’s model, but they don’t the strong customer base, they don’t have strong repeat transaction behaviour and they don’t have a differentiating factor,” Gray said. “So it feels like they’ll struggle and either have to consolidate or simply fall away.”
Unlike Afterpay and its “copycats”, Zip doesn’t break purchases into four or six instalments, instead consolidating account balances into a single ‘wallet’ and charging a minimum monthly repayment on the total.
With unemployment on the rise and incomes falling, there’s an argument to be made that for the first time in almost three decades, Australians may struggle to service the sky-high debt
households have accumulated. The BNPL companies which have grown exponentially may face their first real challenge.
If so, it hasn’t shown up in Afterpay or Zip‘s performance to date. While a ‘retail apocalypse’ is well underway, both haven’t seen a significant decline yet, with Zip’s transactions actually growing in early April – the latest period available.
The country is, after all, still spending, but showing greater discretion over where and how.
“Places like Bunnings, Officeworks, and Kogan are all performing really strongly and there’s definitely been a shift to online. Before around 65 per cent of transactions were online shopping, we’ve seen that jump north of 80 per cent,” Gray said.
March data provided to Business Insider Australia show just how sensitive Australians have become to the federal government’s frequent media conferences.
After Scott Morrison’s first outing on March 15, grocery spending shot up by 28.9 per cent, with the number of Australians grocery shopping barely budging at all – confirming early indicators the country went a little mad stocking up on essentials like pasta and toilet paper.
Showing where the nation’s priorities lie, in the first week of lockdown Australians spent more at bottle shops than in the week leading up to Christmas, last year’s busiest.
Video game retailers have enjoyed a 42 per cent boost, as people swap a largely restricted physical world for virtual ones.
Fuel purchases meanwhile dropped by almost a fifth and dental spend fell by more than a quarter. As people spent more time at home, dog walkers and adult entertainers alike saw precipitous falls, with both seeing a 15.2 per cent and 32 per cent fall respectively – the pandemic proving there is truly no safe industry.
Meanwhile, as hygiene looms large in the public’s imagination, Australians have also given up on cash. By the end of March, the number of weekly transactions had dropped by nearly 40 per cent, while the number of people withdrawing cash had fallen by a third.
Interestingly, panic appears to have seen an initial surge in cash withdrawals. The amount taken out in the first two weeks of the lockdown actually increased by 8 per cent, countering the overall trend.
A small group of extremely wealthy and worried Australians may have had something to do with that.