We are now racing towards the fiscal cliff caused by the coronavirus pandemic. Many things either change, or finish at the end of September. This includes loan deferrals, changes to JobSeeker and JobKeeper, as well as the changes to allow trading while insolvent. We are facing a few waves of bad news. Moreover, the nation is going to be in dire need of financial services to help people get through this period.
Short term credit is where banks have taken their eye off the ball. The sector's principal financial service in this area has been credit cards. A product that now appears to be in terminal decline. For example, from 2017 to June 2020 the number of credit card accounts dropped by 16%. Buy now, pay later (BNPL) services such as AfterPay Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P) have filled part of this gap.
In addition, these two personal financial services companies are also likely to see a benefit during the months to come.
Personal financial services
The market for personal financial services is filled with a range of short-term credit providers. Often derided as payday lenders, these companies are providing a high value of loans outside of the banking system. Particularly in small loans for services or products where a BNPL provider doesn't apply.
Moneyme Ltd (ASX: MME) is a consumer lender with more than $133.6 million in current loans. Over the past month, the share price has jumped up by 57.41%. It has a very swift credit evaluation process enabling it to award up to $50,000 relatively swiftly. Its annual report touches on a few metrics that tell me it knows what its business is. For example, they report that greater than 90% of calls are answered within 9 seconds. That is pretty impressive customer service.
With an average loan term of 24 months, MoneyMe is well placed to provide support in the months to come. Moreover, the company recently took a step into the BNPL space, and has undertaken $6 million in loans already.
Credit Corp Group Limited (ASX: CCP) buys and collects debt within Australia, New Zealand and the USA. The company also provides non bank personal loans to customers in Australia and New Zealand. In FY20, the company delivered an NPAT before abnormals of $79.6 million, 13% higher than the previous year. However, the financial services company has made provisions for a lower loan portfolio due to employment risks. This reduces the statutory NPAT to $15.5 million. It is a provision, however, the cash has not left the company.
Credit Corp noted that its clients across Australia and the US have indicated higher volumes of debt for sale. In the period to come, this is where the company will profit. It has a strong balance sheet and is able to purchase debt with a higher risk profile. However, it will be in a position to negotiate prices, thus increasing profits.
