Zip cuts staff in coronavirus crisis but keeps financial targets

Buy now, pay later provider Zip says it still expects to meet its financial year targets despite delaying its UK expansion.

Zip’s board and executive team will take a voluntary 20 per cent pay cut. Picture: AAP

Buy now, pay later provider Zip said it still expects to meet its financial year targets despite delaying its UK expansion and cutting staff numbers due to the coronavirus pandemic.

Releasing its quarterly performance results and trading update on Wednesday, the company indicated it has slashed staff numbers by approximately 20 per cent in a bid to cut operating costs by roughly $8m. It said 64 employees had been made redundant, while another 14 have been furloughed.

The economic ramifications of the virus also prompted the BNPL provider to delay its UK launch, which was scheduled to occur in the coming months.

Zip will also reduce planned fourth quarter capital expenditure by $1.2m, while its board and executive team will take a voluntary 20 per cent pay cut.

Despite the cost control measures, the company still believes it is on track to meets its 2020 financial year targets of an annualised transaction volume of $2.2bn and an account base of 2.5 million active customers.

“The current economic conditions and delayed launch in the UK, has impacted the company’s ability to reach its global customer target,” the company said.

“However, Zip is comfortable that the annualised transaction volumes will meet or exceed the stated target.”

At the end of the third quarter, Zip said it currently has 1.95 million active customers and an annual transaction volume of $2.1bn.

Investment analysts at Royal Bank of Canada said Zip’s quarterly performance has tracked within its estimates, but did note the company’s bad debt ratio had risen to 1.84 per cent from 1.68 per cent, which was recorded in the previous quarter.

Major rival Afterpay is expected to provide a performance update to investors on April 14.

Zip recorded a third quarter revenue intake of $42.2m, a 17 per cent rise compared to the previous quarter. But incurred an 8 per cent decline in transaction volume over the same period, recording a total figure of $518.7m.

Zip chief executive Larry Diamond said despite the significant economic challenges arising from COVID-19, the company’s core businesses continue to perform strongly.

“Zip is well funded and uniquely positioned to trade through the current environment, given our product differentiation, strong proprietary credit platform, healthy repayment profiles and penetration into defensive, everyday spend categories,” Mr Diamond said.

The company noted its high exposure to “recession-proof” sectors and an increase in online shopping for essential items has enabled demand to remain strong — partially offsetting the reduction in sales from discretionary spending categories, such as fashion and travel.

Zip is also urging the federal government to extend cheap funding and loan guarantees to the BNPL sector, in an attempt to ensure the industry can survive throughout the crisis.

In a submission sent over the weekend to a Senate inquiry into the fintech industry, Zip co-founder Peter Gray said BNPL lenders should be provided similar support measures which are on offer to major banks.

“The big banks have generously offered six-month repayment moratoriums on a range of loan products,” Mr Gray said.

“Fintech lenders seek government support to provide similar assistance to customers.”

Zip suggests further government assistance could be issued through the Australian Office of Financial Management, which has already handed out millions of dollars to the neobank sector.