Afterpay sees increase in financial hardship claims

Afterpay says coronavirus is having little impact on sales growth, despite a jump in customer financial hardship claims.

Afterpay says it is still experiencing growth amid coronavirus lockdowns. Picture: AAP

Payments group Afterpay says coronavirus is having little impact on its underlying sales growth, despite recording an increase in customer financial hardship claims from mid-March onwards.

Shares in the Australian buy now, pay later provider have surgedby nearly 20 per cent on Tuesday following the release of its third-quarter results. Afterpay posted underlying sales of $2.6bn, a 97 per cent increase compared to the 2019 third quarter result of $1.3bn.

Noting that COVID-19 was affecting its ability to identify any sort of sustained trend during the economic downturn, investors responded positively to the trading update, prompting its ASX-listed stock to lift 19.8 per cent to $26.35 per share, as at 1.10pm.

Afterpay said its March trading performance was up approximately 12 per cent on January and February, but had moderated in the second half of the month in line with government-enforced lockdowns and isolation protocols.

The company scrapped its customer growth guidance for the 2020 financial year, saying the virus could impact customer numbers if conditions worsen.

However, it still believes it is on track to meet its previously stated target of 9.5 million customers by June 30. Afterpay’s active customer base totalled 8.4 million, as at March 31.

Financial hardship claims rose from mid-March, however Afterpay said the levels remain “manageable” and are now trending down.

Underlying sales in the second half of the month versus the first, were down 4 per cent — by region the UK was worst hit, down 15 per cent, while the US was down 5 per cent and Australia and New Zealand were lower by just 2 per cent.

“We have experienced positive growth in April month-to-date in all markets with average daily underlying sales up approximately 10 per cent on the second half of March globally,” the company said.

Afterpay’s update follows rival BNPL company Zip notifying the ASX on April 8 that it would maintain its financial targets, despite cutting 20 per cent of its workforce.

Afterpay chief executive Anthony Eisen said the company’s balance sheet was well positioned to cope with the downturn.

“We are confident that our customer-centric model, which encourages budgeting and responsible spending, will be even more relevant in a post COVID-19 environment,” Mr Eisen said.

Analysts at Royal Bank of Canada said Afterpay’s predominant online payments position is likely to assist in cushioning the blow from retail closures caused by the virus. However, did note in-store payment access is one of the company’s key growth metrics.

“We highlight changes Afterpay has made around its risk management decisioning, low account balances and high receivables turnover as key advantages,” RBC analysts said.

As at March 31, Afterpay had a total cash position of $541.1m and a net debt position of $355.7m.

As part of its COVID-19 response plan, Afterpay tightened spending limits to the majority of its customer risk profiles and changed payment rules.

Australian customers must now pay an upfront instalment; a change which has already been implemented in the US and UK. It has also implemented stricter credit approval checks on high risk purchases.

“Contingency plans are in place to introduce further restrictions should there be a deterioration of portfolio payment recovery lead-indicators measured on a daily basis by region,” the company said.

The company’s performance indicators also ascertain customers are beginning to shift towards more responsible spending habits.

Afterpay noted the intention to launch within US stores has been placed on hold while the country’s retail sector remains in shutdown.

It also noted its expansion into Canada is progressing well, but is yet to confirm a launch date.