Beforepay shares tumble nearly 40% just hours after the pay-on-demand fintech’s ASX debut

  • Shares in pay-on-demand service Beforepay collapsed nearly 40% in the hours after its ASX debut.
  • Its share price launched at $3.41 but fell to $2.20 by mid-afternoon.
  • The collapse was likely driven by an operating update which flagged an uncertain future for payment defaults.
  • Visit Business Insider Australia’s homepage for more stories.

Pay-on-demand service Beforepay endured a brutal first morning as a publicly traded company, with share prices tumbling nearly 40% since the opening bell.

Beforepay commenced trading on the ASX at 11am Monday, becoming the latest Australian fintech to test its mettle on the open market.

The company, which lends users a portion of their paycheque ahead of payday for a 5% service fee, hit the bourse with a share price of $3.41.

That collapsed to $2.20 by 2pm, dashing hopes of instant stock market success for the next-gen lender.

Beforepay’s early fortunes on the ASX appear to have been hammered by the fine print of its December quarter trading update, which disclosed pay-on-demand growth but uncertainty over its future default rate.

The firm’s trading update revealed the value of its pay advances grew to $77 million by the final months of 2021 — up dramatically from the $16.7 million on its books in December 2020.

That figure reflects Australia’s rapid and widespread adoption of pay-on-demand services through the pandemic, many of which offer cash advances through slick smartphone apps instead of pawn shops and seedy shopfronts.

Those apps often reflect the aesthetic sensibilities of buy now, pay later (BNPL) services like AfterPay and Zip. Beforepay also lets users repay their advances in four blocks, akin to the BNPL model.

Similarly, both sectors target a young user base. Nearly a quarter of Gen Z Australians have now used a pay-on-demand service like Beforepay to use their income ahead of payday, Finder says.

The percentage of defaults on Beforepay lending also halved over the year, the company said, with 3.08% of loans which matured in October 2021 unlikely to be repaid.

That downturn was the result of improved in-house risk assessments, the firm said, along with a growing number of return customers — that is, users likely to pay off one advance before requesting another one, which may be of even greater value than the first.

However, Beforepay said the future of its default rate is unclear.

“Defaults may increase following the holiday period due to higher average loans and the acceleration in new-user growth,” the company said.

While some projections show the current Omicron wave of COVID-19 infections will do less economic damage than the harsh lockdowns of 2020 and 2021, some investors appear to have taken a dimmer short-term view — and that pessimism seems to have hit Beforepay’s share price.

The company will release its interim results for the six months to December 31 by the end of February, giving a clearer look at its operations through the festive period.

Beforepay’s share market woes come after months of criticism from consumer advocates, who have called on services like Beforepay to face stricter lending rules to protect vulnerable customers.

Beforepay is not subject to the national credit code as it charges ‘service fees’ instead of interest. As a result, it and other pay-on-demand operators are not required to undertake the same customer suitability checks imposed on traditional lenders.

“Wage advance products are becoming more prevalent and are causing harm for some people,” Financial Counselling Australia said in a December report.

“Although distinct from BNPL, they use the same gap in the law to offer products without safe lending practices.”

In May, Beforepay CEO Jamie Twiss said the company was prepared for any further scrutiny it could face through a public listing.

“I think Beforepay starts in a very strong position when it comes to any kind of scrutiny from regulators, the markets, media or anyone else,” he told the Australian Financial Review.

If market scrutiny is what Beforepay expected, it’s certainly what the company has received.