the acceptable face of payday loans – The Market Herald


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It might leave a sour taste in your mouth to hear that Kelly from Sydney has pledged her alliance at Cash Converters to pay the rent this month – it might sound bad, or like it won’t end well for Kelly. But how would you feel if I said that Kelly is a lot better than if she got a payday loan from Beforepay?

Cash Converters isn’t sexy: the name, the seven-year-old bikes for sale outside, and the idea that anyone who walks in is poor and out of luck. This is a hard reality to market. But the companies have tried. Nimble started with ‘smart little loans’, Wallet Wizard dressed financial ruin in a cape and put it on TV after the news and now Beforepay has rolled despair and desperation in glitter and wants we thought it shines like Afterpay.

This is not the case.

It is dangerous, irresponsible and offensive to any sense of human decency. Despite Afterpay’s CFO Luke Bortoli being added to the board last week, joining former Westpac CEO Brian Hartzer and former Westpac executive Jamie Twiss to complete a diverse following of wealthy, middle-aged white men at the helm, it’s a long bow to draw. suggest that there are similarities between Beforepay and Afterpay – beyond encouraging bad financial habits.

Beforepay charges a 5% redemption fee and lends you four weeks. That’s an annualized rate of 65%, or 1.5 times the cost of withdrawing cash from an American Express card at an ATM, which no one actually does.

Afterpay does not charge anything. This presents problems for personal financial management and encourages instant gratification rather than responsible spending, of course. But at least it doesn’t blatantly penalize you in the process.

Last week, Beforepay went to market to raise $35 million for its IPO, ahead of an ASX listing expected in January 2022 with a market cap of $158 million. It has now been reported that the book has been covered, which begs the question – by whom?

Who legitimizes the elephant in the room with more bad debt than Greece?

In fiscal 2021, Beforepay wrote off $5 million in bad debt against revenue of $4.5 million, representing 27.3% of an overall loss of $18.3 million, or 9.5% of all the money they lent. The Commonwealth Bank made provisions for an expected loan loss rate of 0.17% of gross loans in February 2020, meaning that Avantpay’s bad debts in 2021 were 5580% higher than the ABC had planned.

Ben Williams, founder and CEO of Fresh Equities, which provides access to listed capital raises, asked: “Is that different from a mining explorer with no income?”

Yes it is.

Beforepay markets its IPO to investors just as they market their loans to their customers – with lots of glitz and a sincere hope that no one does the math.

It’s one thing to be told a mining explorer hope find gold based on geological surveys and field studies. It is quite another for this explorer to tell us that he is convinced that he will be find gold, despite a track record that suggests they have no idea where to look and, even if they find some, will admit that half of it probably isn’t even gold at all .

So if it’s not the fundamentals that attract IPO bidders, what is?

It’s not the record of their chairman, who struggled to lead Westpac through a scandal but just published a book on leadership anyway, it’s certainly not the growing opposition from advocacy groups consumers. It is absolutely not the founder, Tarek Ayoub, who has been terribly silent since leaving for Canada in May.

Perhaps they heard that before he left, Ayoub bragged to a lawyer at a Stone and Chalk event in Sydney that his clients were “late 20s, early 30s living at home with mum and dad and absolutely shitty to handle the money,” claiming that “they’re really paying me 1000 percent interest!”

Perhaps investors instead choose to listen to replacement CEO Jamie Twiss, who says “we’re talking to people who just need a little more to get through a crisis in a very customer-centric way and responsible”.

Maybe it’s none of the above that attracted bidders, or maybe they didn’t know some things.

All I know is that Kelly has learned her lesson. In some ways, she’s better off for the Cash Converters experience because she swore to herself that she would never get stuck again – it was humiliating having to tell her daughter why she wasn’t wearing her wedding ring and she swore that she would learn from the experience. An experience from which we would all learn and from which we would like to be better than tomorrow.

The loan was cheaper than if she had used Beforepay, but more importantly, Kelly had a strong incentive to pay it back and avoid needing another one. If she had borrowed that money from Beforepay, and if the prospectus is to be believed, she would have become a repeat borrower, coming back again and again for money she could not afford, leaving her with less and less. less each time.

I’m not sure what’s “customer centric and responsible” about effectively charging 65% interest to vulnerable people and then locking them into a downward spiral of debt and desperation , but I think we may soon be able to ask investors how it feels to be roughed up.

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