It might leave a sour taste in your mouth to hear that Kelly from Sydney pawned her wedding ring at Cash Converters to pay rent this month — it might feel wrong, or like it won’t end well for Kelly. But how would you feel if I said Kelly is much better off than if she’d got a payday loan from Beforepay?
Cash Converters isn’t sexy: the name, the seven-year-old bikes outside for sale and the notion that anyone walking in is poor and down on their luck. That’s a hard reality to market away from. But 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 desperation and despair in glitter and wants us to think it shines just like Afterpay.
It is dangerous, irresponsible and offensive to any sense of human decency. Despite last week adding Afterpay CFO Luke Bortoli to the board, joining ex-Westpac CEO Brian Hartzer and ex-Westpac executive Jamie Twiss to round out a diverse suite of wealthy middle-aged white men at the helm, it’s a long bow to draw to suggest there are any similarities between Beforepay and Afterpay — beyond encouraging poor financial habits.
Beforepay charges a five per cent repayment fee and lends to you for four weeks. That’s an annualised rate of 65 per cent, or 1.5 times the cost of pulling cash off an American Express card at the ATM, which nobody actually does.
Afterpay charges nothing. It presents problems for personal financial management and encourages instant gratification over responsible spending, sure. But at least it doesn’t penalise you egregiously in the process.
Last week, Beforepay went to market to raise $35 million for their IPO, ahead of a slated ASX listing in January 2022 with a market cap of $158 million. It’s now been reported that the book has been covered, which begs the question — by who?
Who is legitimising the elephant in the room with more bad debt than Greece?
In FY 2021, Beforepay wrote off $5 million in bad debt against income of $4.5 million, accounting for 27.3 per cent of an overall $18.3 million loss, or a whopping 9.5 per cent of all the money they lent. The Commonwealth Bank made provisions for an expected loan loss rate of 0.17 per cent of gross loans in February 2020, which means Beforepay’s bad debts in 2021 were 5580 per cent higher than what CBA expected.
Ben Williams, Founder and CEO of Fresh Equities, which provides access to listed capital raises asked: “Is this any different to a non-revenue mining explorer?”
Yes, it is.
Beforepay is marketing their IPO to investors just like they market their loans to their customers — with lots of glitter and a sincere hope nobody does the maths.
It’s one thing to be told a mining explorer hopes to find gold based on geological surveys and land studies. It’s another thing altogether for that explorer to tell us they are confident they will find gold, despite a track record that suggests they have no idea where to look and, even if they do find it, will admit that half of it probably isn’t even gold at all.
So, if it’s not the fundamentals that are attracting bidders to the IPO, what is it?
It’s not the track 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 by consumer advocacy groups. It’s absolutely not the founder, Tarek Ayoub, who has been awfully quiet since leaving for Canada in May.
Perhaps they heard that before he left, Ayoub boasted to a lawyer at a Stone and Chalk event in Sydney that his customers were “late 20’s, early 30’s living at home with mum and dad and absolutely shit at managing money,” claiming that “they really pay me 1000 per cent interest!”
Perhaps investors are instead choosing to listen to replacement CEO, Jamie Twiss, who says “we cater to people who just need a little extra to get through a squeeze in a way that is very customer-centric and responsible.”
Perhaps it’s none of the above that’s attracted bidders, or perhaps they didn’t know about certain things.
All I know is that Kelly learnt her lesson. In some ways she’s better off for the Cash Converters experience because she’s vowed to never get that stuck again — it was humiliating having to tell her daughter why she wasn’t wearing her wedding ring and she’s sworn she’ll learn from the experience. An experience we’d all learn from and vow to be better than tomorrow.
The loan was cheaper than if she’d used Beforepay, but most importantly, Kelly had a strong incentive to pay back it back and avoid needing another. If she’d borrowed that money from Beforepay, and if the prospectus is to be believed, she would have become a repeat borrower, coming back for money she couldn’t afford again and again, leaving her with less and less each time.
I don’t quite know what’s “customer-centric and responsible” about effectively charging 65 per cent interest to vulnerable people and then locking them into a downward spiral of debt and despair, but I suspect we’ll soon be able to ask investors how it feels to be dealt a bad hand.