The Zip Co Ltd (ASX: ZIP) share price is taking a big fall today, down 9.29% in afternoon trade.
Zip shares opened this morning at 92 cents and are currently trading for 83 cents.
Today's selling won't come as good news to Zip shareholders. Nor will it be the first time they've watched the ASX buy-now, pay-later (BNPL) company slide lower.
Having soared a remarkable 872% in the 11 months following the post-pandemic selloff lows on 20 March 2020, it's been mostly downhill for Zip shares since.
Since the 19 February 2021 highs, the Zip share price is down a gut-wrenching 93%. In 2022 alone, shares are down 81%.
But for ASX investors hoping the worst was over, the former chair of diversified financial services group Humm Group Ltd (ASX: HUM) and a major Humm shareholder, Andrew Abercrombie, has some unsettling news.
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What unsettling issues are ASX BNPL shares facing?
The former chair of Humm, which has offered consumers the option to pay off loans in instalments for more than 10 years, said most BNPL companies are going to see an increase in bad debts. That's because they've been offering instalment payments to customers for very small figures, without ensuring these customers can make those repayments.
According to Abercrombie (quoted by The Age):
Nothing can change the fundamental flaw with this ultra-small ticket buy now, pay later. You've got to do these things super quickly, and super accurately. And that is where everyone has done it super quickly, but no one has done it super accurately, and that is what is killing every single one of these guys, is losses.
Indeed, Zip shares have come under pressure due to the company's worsening credit losses.
Following Zip's recent third-quarter update, the Motley Fool reported, "Management revealed that due to a combination of both internal and external factors, credit losses increased outside the company's target range during the quarter."
What's the outlook for Zip shares?
The new environment of rising interest rates isn't likely to help Zip shares in the year ahead. With more consumers coming under pressure amid higher mortgage and car loan repayments, bad debts could creep higher.
"No question. Interest rates affect everybody including us," Abercrombie said. "But we know we have a profitable model because over the 15 years we've been in the game we've had interest rates well in excess of 10%."
