A Health Check on the Finance Providers Themselves; FVE on Afterpay and Zip Co Reduced

Despite a short operating history, Afterpay and Zip Co were successful in disrupting Australia’s established credit card issuers. Total transaction volume, or TTV, for both more than doubled each year over the past two years, thanks to their convenient buy now, pay later, or BNPL, solutions to help consumers finance typically low-value purchases. However, it’s hard to imagine the historically strong growth persisting amidst the COVID-19 outbreak as it will likely lead to subdued consumer spending, widespread unemployment and potentially a global recession. The financial viability and earnings potential of both businesses will be tested materially for the first time, which brings greater unknowns and risk. Both were founded after the 2008 financial crisis and we would be more confident of the outcomes if these businesses had already navigated a broad economic downturn.