Embattled buy now pay later provider Zip Co has begun pruning its product portfolio as part of an effort to lift the operating performance of the group.
The company, which reported a full year net loss of $A659 million in 2021, yesterday notified merchants that it was withdrawing several lines of credit products aimed at Australian business customers.
From the end of August Zip will discontinue providing credit lines marketed as “Zip Business Trade” and “Zip Business Trade Plus” to small and medium businesses.
“We created Zip Business Trade and Trade Plus to provide a better way for Australian businesses to manage their cash flow,” the company told business customers in an email sent on Tuesday afternoon.
“Unfortunately, due to the current environment we’ve had to make the difficult decision to close the Trade and Trade Plus services and focus on our core consumer and merchant offerings.
“We apologise for any inconvenience that this may cause you and appreciate your loyalty and support to date.”
The products allow business customers to access lines of credit to fund asset purchases, pay utility bills and settle invoices from more than 30,000 merchants affiliated with the Zip payments network.
Trade and Trade Plus operate as buy now pay later programs for business customers.
The main benefits of the products is that businesses can draw funds to cover purchases without incurring interest.
The Trade product is targeted at micro-merchants requiring lines of credit up to $3000, while Trade Plus offers facilities of up to $150,000 for larger businesses.
Zip Co has been tinkering with fees and pricing of these products in the last 12 months to improve returns.
Monthly late fees on the Trade credit line increased from $12 to $20 last October.
Fees on the Trade Plus product have been more onerous, with business customers required to pay 3 per cent of the value of purchases if they elect to repay the debt in equal instalments over four months.
While the decision to bin the SME line of credit programs surprised some of Zip’s investors and customers, managing director Larry Diamond indicated in a trading update on 22 June that he was moving to “simplify and prioritise” parts of the “profitable” Australian business.
“We have been clear that in response to current market conditions our strategic priorities are to focus on our core business, both products and regions, and accelerate the group’s path to profitability,” he said.
Payments expert Grant Halverson, a critic of buy now pay later business models, said it was difficult to show that Zip’s Australian business was profitable because of the way the company reported its financial results.
“You cannot tell what the operating performance of the Australian business is because Zip does not separate its performance from the New Zealand operation,” he said.
“I believe the buy now pay later industry is facing severe headwinds in the form of regulation, new competition from the likes of Apple and higher funding costs because of rising interest rates.”
Zip’s share price closed up 3 cents to 51 cents on lower than average daily volume. The share price has shed more than 90 per cent of its value in the last 24 months.