2 financial services for the fiscal cliff

With most COVID-related government support ending or changing later this month, people will need financial services for short term credit.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

We are now racing towards the fiscal cliff caused by the coronavirus pandemic.  Many things either change, or finish at the end of September. This includes loan deferrals, changes to JobSeeker and JobKeeper, as well as the changes to allow trading while insolvent. We are facing a few waves of bad news. Moreover, the nation is going to be in dire need of financial services to help people get through this period.

Short term credit is where banks have taken their eye off the ball. The sector's principal financial service in this area has been credit cards. A product that now appears to be in terminal decline. For example, from 2017 to June 2020 the number of credit card accounts dropped by 16%. Buy now, pay later (BNPL) services such as AfterPay Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P) have filled part of this gap. 

In addition, these two personal financial services companies are also likely to see a benefit during the months to come. 

Personal financial services

The market for personal financial services is filled with a range of short-term credit providers. Often derided as payday lenders, these companies are providing a high value of loans outside of the banking system. Particularly in small loans for services or products where a BNPL provider doesn't apply.

Moneyme Ltd (ASX: MME) is a consumer lender with more than $133.6 million in current loans. Over the past month, the share price has jumped up by 57.41%. It has a very swift credit evaluation process enabling it to award up to $50,000 relatively swiftly. Its annual report touches on a few metrics that tell me it knows what its business is. For example, they report that greater than 90% of calls are answered within 9 seconds. That is pretty impressive customer service. 

With an average loan term of 24 months, MoneyMe is well placed to provide support in the months to come. Moreover, the company recently took a step into the BNPL space, and has undertaken $6 million in loans already.

Credit Corp Group Limited (ASX: CCP) buys and collects debt within Australia, New Zealand and the USA. The company also provides non bank personal loans to customers in Australia and New Zealand. In FY20, the company delivered an NPAT before abnormals of $79.6 million, 13% higher than the previous year. However, the financial services company has made provisions for a lower loan portfolio due to employment risks. This reduces the statutory NPAT to $15.5 million. It is a provision, however, the cash has not left the company.

Credit Corp noted that its clients across Australia and the US have indicated higher volumes of debt for sale. In the period to come, this is where the company will profit. It has a strong balance sheet and is able to purchase debt with a higher risk profile. However, it will be in a position to negotiate prices, thus increasing profits. 

Daryl Mather 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 AFTERPAY T FPO. 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.

More on Share Market News

Broker looking at the share price.
Share Market News

5 things to watch on the ASX 200 on Tuesday

Here's what to expect on the local market today.

Read more »

A young woman sits with her hand to her chin staring off to the side thinking about her investments.
Broker Notes

Down 16% in 6 weeks: Is this ASX 200 share a bargain buy?

Bell Potter has given its verdict on this beaten down stock.

Read more »

Ten smiling business people wave to the camera after receiving some winning company news.
Share Gainers

Here are the top 10 ASX 200 shares today

The ASX 200 enjoyed a strong start to the trading week today.

Read more »

Three people in a corporate office pour over a tablet, ready to invest.
Broker Notes

Leading brokers name 3 ASX shares to buy today

Here's why brokers believe that now could be the time to snap up these shares.

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop

1 ASX 200 dividend stock down 20% to buy right now

This beaten-up ASX share could be a top pick for dividends and stability.

Read more »

Man sitting in a plane looking through a window and working on a laptop.

2 cheap ASX 200 shares I'd buy in May

I think these stocks are too cheap to ignore.

Read more »

Smiling couple looking at a phone at a bargain opportunity.
Share Gainers

Why Gentrack, New Hope, Nuix, and Star Entertainment shares are charging higher

These shares are starting the week strongly. But why?

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why Core Lithium, Duratec, Galan Lithium, and Michael Hill shares are sinking today

These shares are starting the week in the red. But why?

Read more »