ASX fintech shares initially saw their values fall with the onset of COVID-19 as fears around the economic impacts of the pandemic weighed heavily on investors. Online lenders were forced to take action to protect the quality of their loan books. Payment solution providers saw demand for some products drop. But some ASX fintech companies have fought back with new products and innovative takes on conservative lending models. On that note, let’s look at how 3 ASX fintech shares are tackling COVID-19 head on.
EML Payments Ltd (ASX: EML)
The EML Payments share price has recovered strongly since the March market meltdown, gaining more than 160% since its $1.34 low. Currently trading at $3.52, the EML share price has yet to regain its February highs of above $5. EML provides payment solutions for payouts, gifts, rewards, incentives, and supplier payments.
Impact of COVID-19
COVID-19 had a significant impact on EML, with mall closures negatively affecting shopping centre gift card sales. This led EML Payments to suspend revenue guidance. The company advised it was difficult to predict how weaker economic conditions would ultimately impact on gift card sales. In March 2020, EML’s Gifts & Incentives segment saw gross debit volume (GDV) fall 29% on the prior corresponding period. In April, GDV fell 53% to $31.4 million, compared to $66.5 million in the prior corresponding period.
Longer term outlook
EML expects COVID-19 to accelerate the move towards digital payments. Longer term, this is likely to benefit EML. Since the beginning of the year, the company has launched several new products and entered into new client contracts to drive its expansion. For example, EML’s ControlPay solution enables companies to facilitate finance to consumers via a digital card on a mobile device. This allows the credit provider to make real time credit decisions on a transaction-by-transaction basis. EML assumes no credit risk on these transactions.
The company has signed contracts for the use of ControlPay with 3 companies in the neo-lending space, with programs expected to be live by early FY21. The solution is also being utlised in the buy now, pay later (BNPL) sector, with EML launching a pilot program with Zip Co Ltd (ASX: Z1P). The company also has approval to launch in Europe with BNPL provider Scalapay, and in North America with Sezzle Inc (ASX: SZL).
Wisr Ltd (ASX: WZR)
The Wisr share price is up a whopping 250% from its low of 7 cents in March. Now trading at 24.5 cents, the share price has yet to regain its February highs of above 30 cents. The recent rise in the Wisr share price saw the company join the All Ordinaries (INDEXASX: XAO) in the most recent quarterly rebalance. Wisr is an online lender with the vision of enhancing customer financial wellness through an ecosystem of products that allow for low cost customer acquisition.
Loan origination levels spike
Last month, Wisr announced that its loan origination levels spiked in May, delivering 48% growth on April. The company delivered a total of $23.1 million in new loans across April and May. Deliberate steps were taken to tighten the company’s credit policy and moderate loan originations in response to COVID-19 disruptions. Growth in May saw loan originations return to pre-COVID levels, despite maintaining the significantly tighter credit policy introduced in March. A new record in total weekly settled loan volumes was also set even with the whole company working from home.
CEO Anthony Nantes said, “In May, we achieved the milestone of the highest weekly settled loan volume in the Company’s history and have now surpassed pre-COVID-19 origination levels. This is an exceptional validation of our fintech business model, proprietary technology, and high-performance culture”.
Quality loan book
Wisr’s loan book is of prime quality, with an average credit score of 712 (above the Australian average score of ~600). At the end of May, 6.7% of total loan portfolio balances were on COVID-related payment deferrals. These loan deferral rates compare favourably to industry-wide deferral rates for residential mortgages (10%) and SME business loans (14%). The impact of heightened customer hardship stemming from COVID-19 is expected to be very manageable given Wisr’s solid balance sheet and low exposure to high-risk sectors.
Money3 Corporation Limited (ASX: MNY)
The Money3 share price has climbed nearly 110% from its March low of 81 cents. Currently trading at $1.69, the Money3 share price remains well below its high of over $3 in February. Money3 provides personal and car loans in Australia and New Zealand. Around 1 in 500 registered vehicles in Australia have a loan with Money3.
Strong pre-COVID results
Money3 reported strong results in the year to March 2020, with revenue up 44% to $93.3 million. EBITDA grew 43.6% to $44.4 million with NPAT increasing 49.2% to $22.9 million. The gross loan book was valued at $443 million at the end of March. The introduction of stage 3 restrictions, however, reduced demand for automotive finance in Australia. Stage 4 restrictions saw the New Zealand market close although customers continued to seek loan pre-approvals during lockdown.
The company continues to make new loans to customers with stable incomes. Movements in arrears have been immaterial, both in Australia and New Zealand, and comfortably within internal receivables targets. Government stimulus is expected to positively impact customers’ ability to make payments on their loans. New loan originations continue, albeit with prudence to unaffected industries. Money3’s loan book has low leverage and is predominantly funded by equity.
Money3 reports it is in a strong financial position with a cash balance of $43 million at the end of April. Last month, Money3 extended its debt facility agreement by one year to 15 December 2021. The interest rate on the facility will also be reduced by 100 basis points effective from 15 December 2020. The company has been lending conservatively throughout the pandemic. Money3 says it is well-positioned to make opportunistic acquisitions and originate new organic growth when demand returns.
The economic downturn will inevitably have an impact on online lenders and payment providers. But these ASX fintech shares are taking action to minimise downsides and maximise opportunities as growth returns.
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Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended Emerchants Limited. The Motley Fool Australia has recommended Sezzle Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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