humm group’s efforts to scale up in the buy now pay later market have produced a significant increase in volume from its expanded product range and new partnerships, but revenue is falling as it cuts its margins to be competitive.

humm released its 2020/21 results yesterday, highlighting a 31 per cent increase in BNPL volumes to A$1.03 billion. Active customer number grew 19.7 per cent to 2.7 million and retail partner numbers grew 12.3 per cent to 82,000.

However, gross income fell 7.3 per cent year-on-year to $443.9 million and net operating income fell 5 per cent to $342.9 million.

Thanks largely to a big drop in impairment expenses - $58.7 million in 2020/21 versus $145.2 million in 2019/20 – net profit increased threefold to $60.1 million.

The BNPL division’s net operating income fell from $94.8 million to $90.8 million year-on-year. The card division’s income also fell, as consumers paid off credit card debt.

humm group chief executive Rebecca James said the company’s BNPL business is suffering margin compression because the increasingly competitive BNPL market is driving merchant fees down.

Another factor is that humm is getting a lot of its volume growth from its small-ticket BNPL products, humm little things and bundll, while its higher margin offering, humm big things, stalled last year.

James said big things volume growth was restricted to 7 per cent because a lot of purchases made using that product are done in store. Last year’s lockdowns hurt that part of the business.

She said the company is taking steps to offset the margin compression, including reducing its cost of funds and reducing credit losses.

On the funding side, humm has been active in the capital markets, completing its biggest ever asset-backed securitisation in March with a $450 million issue backed by receivables originated by its commercial finance division. And in June it securitised $260 million of BNPL receivables.

The company said these deals have increased its capital efficiency, with capital deployed as a proportion of the portfolio declining materially following the ABS transactions.

On the credit quality side, net loss to average net receivables fell 60 basis points to 3.5 per cent in the year to June. In the BNPL division the ratio of net loss to ANR fell 190 bps to 4.4 per cent.

James said these reductions show the benefit of the company’s investment in a better credit decision engine and fraud tools.

The company is pushing ahead with its aggressive expansion plans, with its current focus on overseas markets. humm UK was launched in June this year and has more than 300 retailers signed up.

humm has received regulatory approval to offer its products in Canada and will launch there this year.