Taking a leaf out of leading US consumer finance player Affirm’s book, listed Australian digital retail finance company zipMoney (ASX:ZML) has notified the market it plans to acquire personal finance app Pocketbook.
The acquisition will see the app ‘pocket’ AU$7.5 million, with $6.0 paid upfront and $1.5 million deferred, subject to performance milestones. zipMoney will front AU$2.5 million in cash, with the balance coming in the form of zipMoney shares.
The company is funding the acquisition through a placement to sophisticated and institutional investors, and has so far raised AU$20.6 million at a price of AU$0.55 per share, a 14.4 % discount on the company’s 30-day volume weighted average price.
In late April of this year, Affirm in the US made a very similar move, announcing it had acquired Sweep, a personal finance tool. Unlike zipMoney, terms of the acquisition have not been disclosed. Within weeks of the acquisition the Sweep app was pulled from the app store, with both companies announcing plans to build a ‘more powerful product under the Affirm brand’. A new product is scheduled for release later this year.
Why the parallel moves by both of these companies is interesting:
Forget banks acquiring fintech – fintech is acquiring fintech
Deeply integrated tech plays in the finance sector are what will displace traditional players. The ‘together we are stronger’ cliché works well here. zipMoney has so far focused on integrating its services into a small businesses online checkout process – so it ‘owns’ the business relationship.
On the flipside, Pocketbook has focused on acquiring those very customers who purchase from these small businesses – it ‘owns’ the customer and their data. Pulling these two together creates an almost immediate network effect that can be leveraged. It’s a similar two sided network PayPal has had the luxury of leveraging for so long now.
Pocketbook has 200,000 users (of which I am one). I don’t pay for Pocketbook’s services, and the company is yet to break even on its own steam. The zipMoney announcement indicates it expects Pocketbook, on a standalone basis, to reach cash flow break even in approximately 18 months.
Improved credit assessment of borrowers
Scraping bank statements is par for course in assessing borrowers for loans. Well, Pocketbook users handily sync their bank feeds to the app for the purposes of budgeting. zipMoney presumably will be able to access this data and use it to improve its own lending and credit algorithms. zipMoney’s report shows bad debts as a percentage of receivables sits at around 1% today. While a notably different product, it is interesting to note LendingClub’s write off rate is 7-8%.
Better lending deals for customers
If you could get a great finance rate, would you shop more? Affirm and zipMoney are no doubt thinking about how they can leverage the ‘above average’ credit score performers in the Pocketbook and Sweep portfolios and identify opportunities to market to the consumers they’d most like to lend to from a risk perspective.
Increased mindshare for small business and consumers alike
Both Affirm and zipMoney want to be the ‘wallet homepage’ of their customers. Rather than just a consumer engaging with the company when they want to buy something, these platforms want people engaging with them every day. How else do you build serious mindshare?
Affirm is thought to be valued at around US$800 million. zipMoney has a market cap of AU$44.11 million. Once complete, it will be interesting to see how soon the Pocketbook acquisition positively impacts loan volumes going through the platform.
One suspects the real bottleneck will continue to be getting retailers to implement the company’s financing product at the point of sale. But if zipMoney can show small businesses that they can bring customers in the door faster through the Pocketbook network, this might just tip the scales to make the zipMoney product a need to have for a business, rather than a nice to have.